Most of my investment advice clients are too busy to watch their 401(k) accounts. That is why they hire me. Most of my clients admit they do not have the experience or sophistication to pick mutual funds.
Those clients do not realize that over 70% of NASDAQ stocks fell 20% over the last year. Almost half of the stock on that same index fell more than 50%.
Mutual funds are a collection of individual stocks. If the mutual fund you own in your 401(k) owned some of the NASDAQ stocks listed above, you are in trouble.
For many 401(k) Large Cap and Mid Cap Growth mutual funds, their bear market is already here. These mutual funds lead the stock market higher for years. And provided all-time high 401(k) account balances a few months ago.
That is the shocking news. Now let us look at the first few weeks of 2022.
The NASDAQ is down over 10% so far this year. And the S&P 500 is down over 6%. The U.S. stock markets have been among the worst in the world so far in 2022.
The U.S. stock markets had the worst January since the Global Financial Crisis in 2008.
Oh yes, one more thing. Interest rates are only in the preliminary stages of going up. Rising interest rates can put even more pressure on stock prices. Rising interest rates also can damped future company earnings.
And what about inflation? Remember that inflation is bad for everyone. Individual who buys groceries and gas. And corporation who must pay more for goods and services.
The most important investment management decision in your 401(k) has changed. For years, the most important question was, “What to buy?” That is old news. The U.S. stock markets are no longer supporting higher prices.
Right now, the most important question is, “What to sell.” 401(k) investors must manage their stock and bond market risk going forward. If you own a mutual fund in your 401(k) now that is risky, your best investment management decision would be to sell it.
Your personal and company-matching 401(k) contributions place your retirement savings at risk. Stock prices can fall. Interest rates can rise.
Most times the risk of stock and bond market investing is worth taking. The last several years is a perfect example. The growth of your 401(k) account reached record levels.
Right now, the stock and bond market risk may not be worth taking. 401(k) investors cannot afford to lose a great deal of their retirement plan principal. Regardless of the stage in their working career.
The best 401(k) investment management decision now is to preserve your principal. You will need as much money as possible to invest in the best mutual funds on your default 401(k) menu.
Think about the last time your favorite retailer had a sale. Thank goodness you have the money to spend to take advantage of the lower prices on your favorite items.
Your company 401(k) mutual fund menu is no different. The U.S. stock market is now offering sale prices on specific types of mutual funds. Sell your worst 401(k) mutual funds. Place the proceeds into the safety of the money market for now.
The current U.S. stock market correction has created a huge opportunity for 401(k) investors. The stock market “rebound” will come. But you must own the right 401(k) mutual funds to take advantage.
Ric Lager
Lager & Company, Inc.
