I originally wrote this article on August 5, 2011 on my Golden Valley Patch.com Blog
After yesterday’s historic stock market decline, it is time again to read the usual financial media headlines that are produced after every historic stock market decline. If these headlines were not so predictable, they would be laughable.
“Don’t panic.” “Stocks are cheap now.” “Stay the course.”
The financial wisdom coming for the so called “experts” is always the same after a big stock market decline. You read the same advice from them in the early stages of the last great stock market decline beginning in late 2008.
If you really think about it, what else are these financial experts going to say? What else could they say, now that huge damage has been done in their client’s accounts?
As I have written about in this forum since mid-July, there have been several signs that the stock market risk had dramatically increased in the past few weeks. A game plan to preserve your company 401(k) plan account principal should always be a vital part of how your company retirement plan is managed.
If your 401(k) account fully participated in yesterday’s stock market decline, you still have important investment decisions to make today. It is not too late to get your company retirement plan account properly positioned for the next stock market advance.
You probably still own some mutual funds in your 401(k) account that are not suitable for the realities of the world’s financial markets today. This is especially true for bond mutual funds, WHEN, not IF, interest rates begin to rise.
Those mutual funds should be sold during the next upward “bounce” that always comes after several days of large stock market declines. Sell your worst-performing mutual funds then, and put the proceeds into the money market account in your company retirement plan account.
In the next few months, when there are clearly more buyers than sellers in the stock market, use those proceeds to buy the better-performing mutual funds in your company retirement plan menu.
You will always make more money, long term, owning the best mutual funds available in your company retirement plan menu, rather than “hoping” that the worst-performing mutual funds eventually “go back up.”
Ric Lager
Lager & Company, Inc.
