Many 401(k) decisions start with a risk questionnaire.
A favorite tool of you online 401(k) provider.
You answer a series of questions.
Time horizon, investment experience, and stock market risk comfort.
You are then given a label—Conservative, Moderate, or Aggressive.
It gives you a sense that 401(k) stock market risk is taken care of.
But the risk questionnaire is only capturing how you answer questions.
It’s not measuring how your 401(k) mutual funds.
Will behave when stock market risk levels change.
A risk score reflects your preferences.
It doesn’t manage 401(k) mutual fund stock market risk.
In other what other areas of life,
are decisions made on survey questions?
Doctors rely on test results.
Mechanics rely on inspections.
Lawyers rely on laws.
Evidence matters.
In a 401(k), the stock market risk management evidence.
Sits inside the 401(k) mutual funds themselves.
What market sectors they invest in.
The stocks they invest in inside those stock market sectors.
How concentrated their stock investments are.
The single biggest fault with a 401(k) risk score.
Your age, experience, and stock market risk level comfort.
All get compressed into a single score.
That isn’t any level of 401(k) stock market risk management.
It’s categorization.
To make you feel like you “did something” in your 401(k).
When the stock market’s decline, your results will not match your risk score.
“Conservative,” “Moderate” or “Aggressive” will make no difference.
Each individual 401(k) mutual fund you own.
Needs evaluation of its stock market sector.
And individual stocks.
Understand what you own in your 401(k) mutual funds.
Then decide what level of 401(k) principal loss is acceptable.
Before a stock market decline makes the decision for you.
Concerned about your 401(k) mutual fund stock market risk now?
Let’s connected and I can share your details.
P.S. Don’t let a risk score label your 401(k) stock market risk.
