The widely-accepted theory about the mutual funds in your company 401(k) retirement plan account is that your money is invested with professional investment managers. And according to the mutual fund marketing materials, the investment goals of these managers are to protect and grow your money for a safe retirement.
I will be the one to break the news to you. Your mutual fund managers have much different investment objectives than you have with your company 401(k) retirement plan balance. The reality is that these mutual fund managers don’t ever “manage” your company 401(k) retirement plan money in the way that you might assume.
Mutual fund managers are never obligated to preserve the principal in your company 401(k) retirement plan account during stock market declines. They remain fully invested at all times. That is the only way for them to maximize the amount of investment management fees for their mutual fund companies.
Have you ever wondered about the origins of “buy-and-hold?” This investment management strategy is how your company 401(k) retirement plan mutual fund money is really managed.
You buy, and the mutual fund managers hold; through up, down, and sideways economic and stock market cycles.
Mutual fund managers are prohibited from doing what their individual investors expect them to do…limit the large losses found in the early stages of stock market corrections.
The growth of your company 401(k) retirement plan mutual funds has already taken place. Hopefully your mutual fund manager has kept pace with the popular stock market averages.
Your most important company 401(k) retirement plan investment management strategy now should be the preservation of your existing company 401(k) retirement plan account balance.
Protection of your principal during downward trending stock markets is completely up to you.
The U.S. stock markets are long overdue for another meaningful correction. The hard truth is that it always takes years to recover from stock market declines. The math involved to “get your money back” is indisputable.
Every individual company 401(k) retirement plan account that I manage for my clients has a stop loss point established. If the U.S. stock markets continue to fall, a large part of their company 401(k) retirement savings goes to the money market account option.
Don’t bet the last nine years of your stock market gains and company 401(k) contributions that your mutual fund managers will protect your money in the early stages of the next great stock market decline. It will not happen.
Ric Lager
Lager & Company, Inc.
