Every individual investor is guilty of making poor investment choices in their company 401(k) retirement plan account. Investment management problems can happen to everyone. In 2019, there are a few simple steps that can help you better deal with the up and down stock and bond markets.
The first step is to take full responsibility for the fact that you are not a professional money manager. In order to improve the investment performance of your company 401(k) retirement plan account in 2019, you need to ask for help.
Ask your current investment advisor if he or she is in a position to provide you with an independent, third-party, unbiased analysis of all your company 401(k) retirement plan mutual fund options. If that is not available, find an independent investment advisor who can provide the analysis.
You are not a total stock and bond market dummy. You can make intelligent investment management decisions regarding your risk level. The problem is that you don’t have enough timely information to make those decisions. That is where an investment advisor will help.
The next step is to understand the reasons for your company 401(k) retirement plan account losses last year. You most likely owned too many stock mutual funds that owned the same high-flying stocks in each mutual fund.
When the future earnings of those handful of companies…Google, Amazon, Facebook, Netflix…were adjusted downward in October, those declining stock prices changed the risk level of the stock markets.
The risk levels of the stock and bond markets changed dramatically in October. You most likely did not change your risk tolerance. Historic losses of both your earlier 2018 investment gains and company 401(k) contributions was the result.
No individual company 401(k) retirement plan participant want to intentionally lose their retirement savings. The problem is that they don’t know when and how the risk in the stock and bond market changes. And they don’t adjust how much risk they are willing to take.
Bond mutual funds did not fair any better in 2018. Especially hard hit were the target term mutual funds who own combination of large U.S. stocks and long-term Treasury bonds. When stocks fall and interest rates rise, there is nowhere in those popular mutual funds.
The last step to improve your company 401(k) 2019 investment performance results requires more courage. You need to sell the worst two or three mutual funds you currently own. Place the proceeds in the safety of the money market account option now.
The U.S. stock market is having the biggest after-Christmas sale in the last ten years. You need a money market balance in order to take advantage of the mutual fund sale prices.
This final step gets you right back where we started. That is, seeking a third-party investment advisor who can make you aware of your investment biases and blind spots regarding your company 401(k) retirement plan mutual fund options.
After you sell your biggest mutual fund losers, what company 401(k) retirement plan mutual fund options do you buy? And when?
The short answer is to buy the best individual mutual funds available on your default company 401(k) retirement plan menu. If you did not know which ones to own last year, make a commitment to find out early in 2019.
Ric Lager
Lager & Company, Inc.
