401k Maneuvering

[mental1896]

I've only had a 401k for about three years. When it first started, I didn't really know anything about it, so I went with the default fund and largely forgot about it. When the housing bust came and the economy tanked, my coworkers started complaining about all the retirement money they'd lost. So I took a peek at my own and found that I'd lost practically nothing. Granted, I'd not earned anything either since the default fund was virtually risk-free.

I did some research and when things started picking up, I moved everything to high-risk funds and enjoyed a nice return. But now after the S&P downgrade, I find myself wondering if I could've avoided the losses of this past week by moving everything back to a low-risk fund.

Everywhere I look, people say that I should just ride it out, and I see the wisdom in that. But everybody saw this coming, as well as the recession a few years back. Why isn't it a good idea to move to low-risk investments when it's obvious the market is going down in a big way? They can always be moved back after the dust settles.

[kork13]

Biggest question: how old are you? If you're in your 20's/30's, don't even blink. 40-50's, yes, you should consider some lower-risk options. However, risk has its place in EVERY portfolio, even for a 60-70 y/o.

Bottom line, you most likely have at least 20-30 years before you will need this money or can even think about touching it. As we've seen, alot can change in a decade, a year, and even in a week. So I personally agree with what you've already heard--don't worry too much about it, and keep adding to your 401k. While the markets are down, you're getting more shares for your dollar! This is a buying opportunity!

[Petunia 100]

If you are one of the few who can predict (and be right more than wrong) when the market will go up or down, then yes, move your money in and out.

The vast majority, including professional money managers, can not predict this. Moving in and out is the exact reason why many investors underperform the market. Think for a moment about what you have written. You can move back in "after the dust settles". Many people invest just this way. The problem is that AFTER the dust settles is not when the money is made. You must be invested BEFORE the dust settles if you want to grow your money.

Investors Get It Wrong — Again - CBS MoneyWatch.com

The vast majority of us do best by making a reasonable asset allocation plan, rebalancing periodically, watching our costs, and ignoring the noise.

In my opinion, you should not be all in cash nor all in high risk funds. You should have a reasonable mix of stocks and bonds, foreign and domestic, large and small, value and growth.

[krantcents]

I would develop my asset allocation and see how your recent investment choices fit with it. Rather than continually moving things around, you may just move all your nw contributions to the other asset choices you make. Remember make your asset allocation plan first.

[nick__45]

If you keep staring and worrying about your 401k on a daily basis, you'll maneuver toward heart attacks and stroke.

[bjl584]

Originally Posted by nick__45

If you keep staring and worrying about your 401k on a daily basis, you'll maneuver toward heart attacks and stroke.

This may be a bit extreme, but I agree on principle. Your 401K is a long-term investment. You should check on it quarterly and rebalance as necessary. Your allocation should shift as you get older, but other than that, worrying about it daily based on market swings will only drive you nuts.

[GrimJack]

Rather than moving your funds around - change your allocations. If your research says that now is the time for low risk funds, change how you apply your current allocation. If you move your entire amount chasing changes, you will just lock in any losses - selling low and buying high.

[GREENBACK]

Originally Posted by mental1896

Why isn't it a good idea to move to low-risk investments when it's obvious the market is going down in a big way? They can always be moved back after the dust settles.

This is classic buy high, sell low thinking.