I have been providing investment advice to 401(k) investors for over 36 years. I know the most important investment management function I provide for my clients.
The economic, interest rate, and stock market risk levels changed over the last few months. My 401(k) investment advice clients need me to remain vigilant. Changes in the stock and bond market risk levels are frequent.
The current U.S. stock markets are trading a little off the October low. U.S. interest rates continue to move higher. Your year-end 2022 401(k) quarterly statement will be shocking.
The sad news is that 401(k) principal risk levels are much higher now than they were a couple of months ago.
I have urged my 401(k) advice clients to take the necessary principal preservation steps now. These steps preserve as much of their current 401(k) account value as possible.
When is the worst time to buy a home-security system? After a break-in.
When is the worst time to buy hurricane insurance? After a hurricane.
When is the worst time to check your tire pressure? After you have already had a blowout.
You get the idea.
Stock market volatility levels are at all-time high as we begin 2023. All historical stock market measurements predict a stock market decline is long overdue. A stock market risk management plan is a necessity now.
Your number one 401(k) investment goal is the preservation of the largest amount of principal. Segregate the mutual funds you own in your 401(k) into two main groups
First, you own mutual funds that you should have never bought in the first place. Sure, they went up in value during the stock market advance. But their investment performance has always lagged. Other mutual funds on your company 401(k) retirement plan menu performed better.
The worse investment performance may be yet to come. Lagging mutual funds fall in value at a much faster rate when the stock market declines.
Sell any lagging mutual funds you own now in your 401(k) account. Put the proceeds into the safety of the money market account option on your 401(k) menu.
The second group of mutual funds you own outperformed. During the recent stock market decline those mutual funds held their value. Better than the stock market averages. In both up-and-down markets.
These mutual funds you can continue to own now. The 401(k) investment management strategy going forward is clear by now. Own more 401(k) mutual funds in this second group. As soon as the current stock market decline has run its course.
Improve the quality of your 401(k) mutual funds. Build up a money market account position. This strategy will allow you to take full advantage of the current stock market decline.
Ric Lager
Lager & Company, Inc.
