I have been providing investment advice to individual investors for over 36 years. Over that time, I have learned one of the most important investment management functions I provide for my clients.
The economic, political, interest rate, and stock market risk levels have changed over the last few months. My individual company 401(k) investment advice clients need me to remain constantly vigilant to these changing risk levels of the stock and bond markets.
The current U.S. stock market are trading near all-time highs. U.S. interest rates are near all-time lows. The upcoming good news is that your year-end company 401(k) quarterly statement may also be near all-time high balances.
The bad news is that U.S. stock market high current risk levels are much higher now than they were just a couple of months ago. And U.S. interest rates are already moving higher.
I have strongly urged my individual company 401(k0 retirement plan participant investment advice clients to take the necessary principal preservation steps over the last few weeks. These steps are intended to preserve as much of the 2020 stock and bond market investment gains 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’s the worst time to check your tire pressure? After you’ve already had a blowout.
You get the idea.
Stock market volatility levels are at all-time highs as 2020 comes to a close. By all historical stock market measurements, a meaningful stock market decline is long overdue. A stock market risk management plan is a necessity now.
Your number one company 401(k) retirement plan account investment objective now needs to be the preservation of the largest amount of principal. To accomplish that objective, segregate the mutual funds you own in your 401(k) fall 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 overall stock market advance. But their investment performance has always lagged other mutual funds available to you on your default company 401(k) retirement plan menu.
The worse investment performance may be yet to come. Historically, 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 company 401(k) account. Put the proceeds into the safety of the money market account option on your company 401(k) menu.
The second group of mutual funds you own are outperforming the broad stock market averages during the recent stock market advance. And they have held their value better than those same stock market averages over the last few months of stock market ups-and-downs.
These mutual funds you can continue to own now. The investment management strategy going forward is to buy more of this second group of mutual funds as soon as the next great stock market declines runs its course.
In order to improve the quality of the mutual funds over the long-term, you have to build up a money market account position. This strategy will allow you to take full advantage of the next great stock market decline.
Ric Lager
Lager & Company, Inc.
