“The stock does not know that you own it.”
Reminiscences of a Stock Operator
Jesse Lefevre, 1923
The above quotation is one of the most profitable words of investment advice that you could ever read. The logic and truth behind this investment management concept is especially important when the stock market is in the early stages of a correction phase.
The mutual funds you currently own in your company 401(k) account are a collection of individual stocks. Individual stocks will always follow the general direction of the stock market.
Mutual fund managers only know who to “buy-and-hold” the company retirement plan money that you invest with them. When the stock market goes down, your mutual fund managers do not have the same investment objectives as you do.
As a retirement plan investor, your primary investment management objective is to preserve your company 401(k) retirement plan account when the stock market begins to fall.
Stocks and mutual funds don’t have retirement dates. They both go on-and-on forever. You only have a set number of years to contribute to and manage your individual company 401(k) retirement plan account.
Remaining 100% invested during a declining economic and stock market condition makes no sense whatsoever. Short-term stock market losses are a part of long-term stock market investing. But large stock market losses can be easily avoided.
You need to review the company 401(k) retirement plan mutual funds that you currently own. Then set stop loss points in order to preserve as much of your company 401(k) retirement plan principal as possible.
Professional investment advisors always set loss limits during stock market declines. The sophistication of technology today makes it easy for individual company 401(k) retirement plan mutual fund investors to do the same.
If you lose 5% of your company 401(k) retirement plan account, you can easily make that money back during the next stock market advance. An investment loss of 5% needs a subsequent investment return of just 5.3% to get back to your original account value.
If you lose 25% of your company 401(k) retirement plan account, you need an investment return of over 33% to get your original account value. That amount of investment gain could take years for you to “get back to even” before you retire.
Ric Lager
Lager & Company, Inc.
