Managing your 401(k) mutual fund portfolio has more to do with gardening than you might imagine.
I have found that the concept of “gardening” tends to resonate with individual 401(k) investors. Let’s see if I can help you make the same connection.
Spring is time to till the soil and plant your seeds for your summer crops. Next comes the water and fertilizer. After that, you will pull the weeds. Otherwise, the garden won’t grow.
Being a good gardener is not a function of luck. Instead, there is a level of work involved. Analysis and planning help as well.
Spring is taking hold around the country. In my area, it is much later than normal. Get out and garden.
It might be the opposite season now in your 401(k). Not based on the weather calendar. Based on the economic and stock market calendar.
Preparing the soil and planting your 401(k) is long gone. Right now, you need to pull the weeds. Clean out your bad 401(k) mutual funds.
Read about any layoffs recently? Or poor company earnings? Seen any headlines about an upcoming recession?
Inflation may be cooling off. But the results of rising interest rates are beginning to slow down the economy.
Your 401(k) mutual funds are like plants in your garden. The choices made based on environmental factors. What is “in season” takes priority over what it not. All 401(k) mutual funds need the same level of adjustments. Based on the current economic and stock market cycles.
Don’t forget about interest rates. Your 401(k) bond and target date mutual fund principal has been at risk for the last several months. It might be time to change any 401(k) mutual fund investments you have there.
Sell losers and laggard 401(k) mutual funds you own now. Build up the money market account. The fertilizer that will preserve your 401(k) account value now. And make it grow when the economic and stock market environments are back in your favor.
The calendar may say Spring. The current economic and stock market cycle says Fall. The change in seasons in your 401(k) may be upcoming. Dictated by the technical and fundamental economic events. A change in consumer behavior. Or a change in the supply and demand for stocks.
The best weeding of your current 401(k) mutual funds need not be a one-time event. Instead, set a hard dollar “stop-loss.” That is, if your 401(k) account value should fall to a certain level, sell the worst mutual fund you own.
No emotion. No guessing. The common sense action to preserve your 401(k) principal. At a pre-determined level that allows you to sleep better at night.
Raising the money market position in your 401(k) is seldom a bad idea. You likely should not have owned some of the mutual funds you own now. In the past or going forward.
The stock market may decline from its current levels. And interest rates continue to rise. One or both events should lead to the “weeding” of your worst 401(k) mutual funds.
The preservation of your 401(k) principal is now your investment management challenge. The protection of personal and company-matching 401(k) contributions.
You can never predict the future actions of the Federal Reserve. Or if the U.S. economy falls into a recession. But you can protect your 401(k).
For those who love to garden, the tasks involved are a joy. Something to look forward to as the weather begins to cooperate. Their efforts enjoyed for months to come.
Your 401(k) can be the same way. Weed it out today. You will enjoy the preservation of your principal. Your actions today will lead to long-term 401(k) investment management success.
Ric Lager
I have spent the last several years trying to figure out the best way to share my 401(k) advice content. I have tried Twitter, Facebook, company web site, and LinkedIn Groups. I now realize nothing beats a well-crafted newsletter delivered to your inbox once a week. Sign-up here.
If you are concerned about your current 401(k) mutual fund “weeds,” comment below. Let’s start a conversation. The preservation of your 401(k) principal might be at risk.
