It’s Time to Spring Clean Your 401(k)


It is supposed to be spring. I know that is because I saw the note stating Spring Equinox on my desk calendar on March 20th.

The weather in most parts of the country has not cooperated with the planned change in seasons. You would not think that warm weather and sunny days are just ahead.

Don’t let the lousy spring weather stop you from your annual obligation to clean out your closet and your garage. Each place has most likely accumulated far too much junk over the winter months.

With the stock and bond markets near all-time high price levels, I think that same spring cleaning rationale should be applied to your company 401(k) retirement plan account.

In the past two months the stock markets have stalled. The consensus is for a rise in interest rates later this year. Those two events are a great time to revisit the important investment management concept of selling your worst investments near all-time high price levels.

You likely own at least one or two stock market mutual fund investments that have not kept pace with February’s S&P 500 all-time highs. Your mutual funds have gone up with the overall stock markets in the last few years.  But their investment performance is nowhere near all-time high price levels.

The same goes for your current bond mutual fund holdings. The recent talk of a possible Federal Reserve interest rate hike has the bond markets very concerned. Rising interest rates make bond prices fall; and with that comes a drop in the value of bond mutual funds.

These “lagging” mutual funds drag down your overall company 401(k) retirement plan investment performance. There is also a good chance that these mutual funds are among the most expensive options on your company 401(k) retirement plan menu.

Your company 401(k) retirement plan account inattention has worked well for the last six years. That same buy-and-hope investment management strategy will not protect the last six years of your investment gains.

Spring clean your company 401(k) retirement plan account now. Go online, and access the trailing 12 month investment performance numbers on each of your company 401(k) retirement plan account mutual fund holdings.

You will be surprised by the “gap” you will find in those numbers.

Sell the worst stock and bond mutual fund that you currently own. Place the proceeds in the safety of the money market option on your company 401(K) retirement plan menu. You have then preserved those investment gains. And you have money set aside to take advantage of the stock and bond market “sale” at a later date.

It may take some time for the stock market volatility to subside. The Federal Reserve has to announce their interest rate intentions in the next few months. When both of those events are completed, you can invest in lower cost and better performing options available on your company 401(k) retirement plan menu.

When you are online with your company 401(k) retirement plan provider, see if you have the SDBA (self-directed brokerage account) account option. That account would provide access to lower cost and better performing mutual funds going forward.

Ric Lager
Lager & Company, Inc.

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