No sold stock market bottom predictions from me. The financial services media is full of investment advisors who offer that content.
My 401(k) advice clients do not pay me for forecasts. They pay me for ongoing results. In both up and down stock markets.
Right now, there are two important investment management considerations in your 401(k).
Both considerations need an especially important balance. You must balance the amount of stock market risk you want to take going forward.
Here is the first consideration. In dollars or percentages, how much more are you willing to lose in your 401(k) retirement plan account?
Forget your June 30, 2022, statement balance. You have already lost that money. The best use of your time and decision-making is to figure out how to recover your 401(k) losses going forward.
Set a dollar or percentage amount of how much more 401(k) losses you are willing to take going forward. Place that number in your mind. Or better yet, write it down and put it in a place you visit every day.
You now have your mental and emotional stop losses. If a future stock market decline drops your 401(k) account value to those stop loss levels, you do not think about it.
You sell the worst 401(k) mutual fund you own. The dollar amount of the sale proceeds goes in to your 401(k) money market account.
You do not need to sell all your current company 401(k) mutual funds. You only need to sell the worst mutual funds you currently own. And take your stock market exposure down to a level where you limit any future 401(k) principal losses.
Stop loss levels completely solve 401(k) investment management risk. That is, the risk of losing more principal.
The second investment management consideration is harder to manage. That is the risk of losing out on the eventual stock market bounce. Many bounces are temporary. One of the bounces will set off the next great stock market advance.
Common sense helps your 401(k) investment management decisions. You need a money market balance in your 401(k) now. To take full advantage of the stock market “sales” prices at some point in the future.
Here is the key point. You only have two investment management decisions to make in your 401(k).
Either establish stop loss levels to preserve your 401(k) retirement plan principal. Or continue to “buy-and-hope.”
You have already done the “buy.” It is the “hope” that the stock market will recover that is the hard part.
You cannot have both options.
P.S. One more thing about the “hope” part. It may be exceedingly difficult to recover your lost 401(k) principal over the next few years. You will need to own the best mutual funds on your default 401(k) menu.
If you do not know which mutual funds are in your 401(k), comment below. Or reach out to me on LinkedIn. Or Google my name.
Ric Lager
Lager & Company, Inc.
I have spent the last several years trying to figure out the best way to share my 401(k) advice content. I have tried Twitter, Facebook, company web site, and LinkedIn Groups. I now realize nothing beats a well-crafted newsletter delivered to your inbox once a week.
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