Focus on Your 401(k) Risk Now

I wrote this article on March 13th, 2012 for my Golden Valley Patch Blog.

The last few weeks of stock market activity has all the appearance of a short-term stock market top.

It is too early to make a definitive SELL recommendation on all your Minnesota company retirement plan investments, but you surely want to pay as much attention as you can to your company retirement plan account over the next few weeks.

We will not know until weeks or months from now if the recent stock market weakness produces another stock market high point. The only thing we do know right now is that the stock markets have not continued to move higher from their October 2011 bottom.

The S&P 500 topped out at 1371 on February 27th. In the trading days since then, most of the action in this indicator has been to the downside. The bad news from Greece debt, a slowdown in China, and the continued unemployment and housing crisis in the U.S. seem to be finally taking its toll on the U.S. stocks.

If you throw in the rumors of a war between Israel and Iran, and the $4.00 gasoline prices will be paying this summer, it is a wonder the stock market have moved as high as it is now.

On May 2, 2011, the S&P 500 topped out at the same 1370 level. From that date until October 4, 2011, the S&P 500 lost over 21% of its value.

If you lose 21% of the value of your investments, it takes an investment return of over 26% in order for you to “get your money back.”

For the second time in less than a year, the U.S. stock markets have provided a second-chance to make better investment management decisions in your company retirement plan account.

If the mutual fund that you currently own has kept pace with the investment returns of the S&P 500 since late last year, you can continue to own one of the best mutual fund options in your company retirement plan menu.

If any of the mutual funds that you currently own has lagged that same index over the same period of time, then you need to make the investment management decision of how much risk you want to take owning that investment going forward.

When the stock market goes down again, diversification is not going to preserve the principal in your retirement plan account. Neither is a buy-and-hold investment management approach to your company retirement plan account holdings.

The only way to preserve the investment gains that you have made over the last few months is to sell your worst-performing mutual fund options and place the proceeds into the money market account in your company retirement plan menu.

Protection of your company retirement plan principal at a stock market high is one of the best investment management decisions that you can ever make. The first step in that process is often selling your worst-performing investments before the stock market goes down.

Ric Lager
Lager & Company, Inc.

 

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