I have been providing investment advice to individual investors for over 37 years. Over that time, I have learned one of the most important aspects of my job.
The current U.S. stock and bond market risk levels are much higher now than they were even a few weeks ago. The key now is to become more aware of the potential for dramatic risk level changes.
Tack action now to preserve the last several years of 401(k) stock market investment gains.
Prudent 401(k) investment management includes preservation of your company 401(k) principal.
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.
The current round of stock market volatility and rapid declines were long overdue. That is exactly why a stock market risk management plan always needs to be in place.
It is not too late. The mutual funds you own now in your 401(k) fall into two main groups now.
First, you own mutual funds that you should have never bought in the first place. Sure, they went up in value when the stock market went up. But their investment performance lagged other mutual funds you could have owned instead.
Bad 401(k) mutual funds decline in value at a faster rate than popular stock market benchmarks. Always have, always will.
Sell the worst 401(k) mutual funds you own now. Place the proceeds into the safety of the money market account option in your company 401(k) account.
The second group of mutual funds you own are decent mutual funds. They outperformed the popular stock market averages on the way up. And they have held their value better than those same stock market averages over the last few weeks.
These mutual funds you can continue to own now. With the money market balance your raise now, you can buy more of this second group of mutual funds soon.
Improve the quality of your 401(k) mutual funds now. The first step is to have a money market balance when the stock market “sale” is over.
The second step is to buy the best 401(k) mutual funds available. That is the best way to save your company 401(k) retirement plan account now.
Ric Lager
Lager & Company, Inc.
