Adjusting 401k to better weather market downturn

[richinspirits]

I feel that this is a silly question, but forgive me! I have had friends talk of pulling out their money in stocks and converting it to cash in anticipation of an upcoming downturn, and advising me to do the same. I have an active Vanguard 401(k) through my current employer with a balance of $400,000. I’m far away from retirement and don’t want to actually pull it out, but how can I better understand my options for funds that i might potentially move money into? I tried to check this before and had a hard time finding certain bond funds that my friend recommended. Is it possible that my employer has limited the number of possible funds in our plan?

Thanks for any advice!

[richinspirits]

I maybe didn’t mention that I am not planning to do anything rash...just wanting to understand better the implications and possibilities, and not knowing exactly how best to research.

[parafly]

Trying to time the market is a fool's errand.

What is your time horizon to retirement? If it is still a ways off, I would strongly advise you hold tight and continue contributions as usual. Trust the process.

It's anybody's guess what the market is going to do tomorrow, next week, next month, next year, or next decade. One factor that I am considering in today's market conditions is where else is the money going to go? Interest rates are at historic lows. The FED is pumping a ton of money into the market. These aren't exactly the conditions or environment where a market downturn is likely from a historical standpoint. Can there be a correction? Sure, but it's impossible to know when it's going to happen. Trying to time it and banking on getting it right is riskier than just sticking it out assuming you have a long time horizon.

[corn18]

What company is the custodian of your 401k?

[richinspirits]

parafly Thanks! I tend to agree with you, mostly wanted to see if what my friend said has merit!! I am 40 and have toddlers, so that money will be untouched for a couple of decades at least...

The account is with Vanguard.

[corn18]

parafly Thanks! I tend to agree with you, mostly wanted to see if what my friend said has merit!! I am 40 and have toddlers, so that money will be untouched for a couple of decades at least...

The account is with Vanguard.

Coolio. You can log into your 401k account at Vanguard and download something called the Summary Plan Document (SPD). It will list all the funds available to you in the 401k. The thing is, not all funds are available in a 401k unless you have a feature called Brokerage Link, which is not available for all 401k. My plan did not have it until 2 years ago when we merged with another company. Take a look at the SPD and let us know what funds are available in your 401k.

[richinspirits]

I don’t know why I haven’t done this in a while! (The aforementioned toddlers tend to throw a wrench in things, haha!) but I logged in and saw something I couldn’t find before - a list of all the possible funds available in my plan. So it is limited, and now I see the list. I see one under “short-term reserves” that is a cash fund - so that would be “moving it to cash” I guess? Not that I am doing that! Overall it seems pretty limited - 9 possible stock funds, 3 bonds, and 2 stocks and bonds. Target funds which I know to stay away from because they usually have higher fees...

Right now I have 5.5% in bond funds, 7.5% in balanced funds, and 87% in stock funds.

[cypher1]

If you're not planning to access for another 20+ years, I say let it ride depending on your risk tolerance/comfort level. For example, I'm 39 with current 401K having close to 200K (95/5) and have no desire to change my strategy. I watched my balance go drop 35% in March/April but stayed the course. At the same time a good friend/day trader warned to me to move to majority of bonds to protect balance/cash, thinking I was nuts for leaving as is. Moral of the story is we both have a long ways to go before retirement, and expect more ups and downs to get there. We have plenty of time to recover.

[corn18]

I don’t know why I haven’t done this in a while! (The aforementioned toddlers tend to throw a wrench in things, haha!) but I logged in and saw something I couldn’t find before - a list of all the possible funds available in my plan. So it is limited, and now I see the list. I see one under “short-term reserves” that is a cash fund - so that would be “moving it to cash” I guess? Not that I am doing that! Overall it seems pretty limited - 9 possible stock funds, 3 bonds, and 2 stocks and bonds. Target funds which I know to stay away from because they usually have higher fees...

Right now I have 5.5% in bond funds, 7.5% in balanced funds, and 87% in stock funds.

There should be a list of fees for all the funds. Target Date funds used to have moderate fees (0.5%) compared to index funds, but they can be very low. My 401k offers target date funds @ 0.12%. That's cheap and they are set and forget kindof of funds.

[richinspirits]

corn18 Thanks! Something to look into tomorrow! Really appreciate your insight!

[richinspirits]

cypher1 We are in very similar boats! Thank you! Good to hear someone backing up my gut feeling...

[corn18]

In the meantime, this is always a good read about Bob, the world's worst market timer:

https://awealthofcommonsense.com/201...-market-timer/

[cypher1]

To add-on to what Corn said, don't worry about fees in Vanguard Target funds as they're already very low (or in general all funds). I know VFORX (Target 2040 fund) is expense ratio is .14% which is still pretty good IMO. I wouldn't be surprised if your 401K has even smaller ERs for them.

The only recent 401K change I made was choosing to simplify with passive index funds to rebalance and move way from active MFs and Target fund within Fidelity. Everything else for investing is pretty aggressive with Vanguard for taxable and retirement accounts as well.

But back to your ratio, I think what you have listed is pretty good for your age, while some may say it's too aggressive. Which goes back to your own comfort level. There is nothing wrong with changing or tweaking if you feel something is off.

[disneysteve]

I agree with everyone else.

1. Market timing doesn't work.
2. Your friends are wrong.
3. You are 40 and have 20+ years until retirement. Stay the course. Your current allocation is a good one but if you want to tweak it to be a tad less aggressive I wouldn't argue with that.
4. Target funds with Vanguard are good options and have low expenses.
5. Kudos for you for asking the questions and taking the time to learn more about your options.

[bjl584]

I won't say that market timing doesn't work.
It just doesn't work for the average investor.
Some people, a few on this board, are wildly successful at it.
But, if you don't know what you are doing, really know what you are doing, then I wouldn't tinker too much with your nest egg