401k Advice For Recession

[MetalMan]

32 years old, paid off house, not married, no kids, job pays mid 50s. I just started the job 2 months ago and along with it, my first 401k plan. Currently have $500 in the plan. No other retirement savings. I'm putting $1000/mo into it now.

Let's say another recession hits, or big downturn in the stock market happens. What is the best way to protect my 401k plan from taking a big hit? I have attached a screenshot of the options my employer's 401k plan gives me. I've heard mutual funs is the way to go but I don't see that available in my 401k plan investment fund options.

[MetalMan]

Well it looks like there is a problem uploading attachments, they do not show up. It is impossible to go into advanced mode when editing a post, it gives me an error. Instead of uploading a picture I just copied the available investment fund options below. Looking for the safest one for a recession or advice on how to invest in something safer than the options I'm given here.


INVESTMENT FUND Current Future


Income

Vanguard Intermediate Term Bond Index Fund - Admiral Class Shares 0%

Wells Fargo Advantage Core Bond Fund - Class R6 0%

Goldman Sachs Financial Square Government Fund - FST Class 0%


Growth & Income

JPMorgan SmartRetirement Income Fund - Class C 0%

JPMorgan SmartRetirement 2015 Fund - Class C 0%

JPMorgan SmartRetirement 2020 Fund - Class C 0%

JPMorgan SmartRetirement 2025 Fund - Class C 0%

JPMorgan SmartRetirement 2030 Fund - Class C 0%

JPMorgan SmartRetirement 2035 Fund - Class C 0%

JPMorgan SmartRetirement 2040 Fund - Class C 0%

JPMorgan SmartRetirement 2045 Fund - Class C 0%

JPMorgan SmartRetirement 2050 Fund - Class C 0%

JPMorgan SmartRetirement 2055 Fund - Class C 0%


Growth

Columbia Dividend Income Fund - Class R5 0%

Vanguard Institutional Index Fund - Institutional Class 100%

T. Rowe Price Growth Stock Fund 0%


Aggressive Growth

DFA US Targeted Value Portfolio - Institutional Class Shares 0%

Voya SmallCap Opportunities Fund - Class R6 0%

DFA Large Cap International Portfolio - Institutional Class Shares 0%

Vanguard FTSE All World ex US Index Fund - Admiral Class Shares 0%

Dodge & Cox Global Stock Fund 0%

Total

[Fishindude77]

This is a great opportunity for you. Hope your employers does some sort of match too, make sure you take advantage of all of that. I'd recommend at least 10% of your pretax weekly income goes into the 401K, plus whatever employer match is available.

Been in a plan very similar by John Hancock for a long time. Took a big hit during 2008 / 09 dip in the economy but it has rebounded very well and back on track. Talk to your plan administrator, but they will have multiple investment options depending on your tolerance for risk.

At 32, I'd want most in a stock market based, blended fund leaning towards higher risk / higher rate of return. You can back down your level of risk as you near retirement if that makes you more comfortable.

During a recession the value on your statement may drop dramatically as values of shares of stock decrease, however if you continue to invest you are buying new shares of stock cheaper and will be ahead of the game when economy rebounds and stock values increase. It's a real long term deal.

Another point with a 401K is that you are using pre-tax dollars. If you are at a 25% tax rate, you are 25% ahead of the game using a 401K vs investing money from your take home pay. This is a huge advantage you can't get with many investment options.

[feh]

Let's say another recession hits, or big downturn in the stock market happens. What is the best way to protect my 401k plan from taking a big hit?

First step is to decide how much risk you are willing to tolerate. My initial reaction to your post - you sound fearful. If you are investing money for 20+ years, you shouldn't care what the value of your 401K will be next month, or next year. You need to focus on long term appreciation.

Educate yourself regarding investing; start here: http://www.bogleheads.org/wiki/Bogle...g_start-up_kit

[autoxer]

Let's say another recession hits, or big downturn in the stock market happens. What is the best way to protect my 401k plan from taking a big hit?

For a young investor, a recession can be a good thing, because it allows you to buy more shares then if they were priced higher. Think of it like stocks going on sale.

When my 401k drops in the next recession, I'm not going to do anything. Selling the assets for something safer would just lock in the losses and miss the following recovery, so it's best to just leave it alone. Choose an asset allocation that you are comfortable with and let it ride.

[MetalMan]

Thanks for replies. I would like to take more risk when things are going good, but I am concerned when the economy is forecast to take a dive. I would think that moving your high risk investments into low risk investments until things start to pick up would be smart. I'm not taking about switching investments after they have already taken a big hit, that doesn't make sense. But if one was to move money from high risk investments to money market funds or something BEFORE the market falls significantly, avoiding the loss on that money, wouldn't that be the best bet? I understand it's a long term strategy but it really seems to make sense to me to do something like this if the market is going to experience a large correction. I'd continue to save money, and although not earning a lot on it, at least it's not going to lose. I just can't imagine that stocks are going to continue to climb like this forever.

And I understand that a recession can be a good thing, for those who already have money to invest. I would love to invest in funds when they are low, but I don't want to ride it from the top to the bottom. Why not move those funds out of high risk and into low risk, then back into high risk once the worst of the recession is over?

[Fishindude77]

If you have a crystal ball that will tell you when the market is going to go up / down you ought to be running JP Morgan, not using them as an investment tool.

Seriously, switching investments pools within a 401K is something you might only do a few times over the course your 401K investing life. The normal strategy is use one of their more popular blended funds, higher risk while you are young, tapering back to lower risk as you near retirement.

You need to let that money ride somewhere long term so it will work for you, and unless you believe we are going to have some sort of total US Economy / World Economy collapse, some needs to remain in the market to achieve any sort of reasonable gain or return.

[autoxer]

Thanks for replies. I would like to take more risk when things are going good, but I am concerned when the economy is forecast to take a dive. I would think that moving your high risk investments into low risk investments until things start to pick up would be smart. I'm not taking about switching investments after they have already taken a big hit, that doesn't make sense. But if one was to move money from high risk investments to money market funds or something BEFORE the market falls significantly, avoiding the loss on that money, wouldn't that be the best bet? I understand it's a long term strategy but it really seems to make sense to me to do something like this if the market is going to experience a large correction. I'd continue to save money, and although not earning a lot on it, at least it's not going to lose. I just can't imagine that stocks are going to continue to climb like this forever.

The problem is that you don't know when the market is going to take a dive. It could be next month or it could be in 5 years. If anybody claims that they know what the market is going to do in the short term, don't believe them. If the professional mutual fund managers can't figure out how to time the market, then what chance do you and I have as individual investors?

[feh]

Thanks for replies. I would like to take more risk when things are going good, but I am concerned when the economy is forecast to take a dive. I would think that moving your high risk investments into low risk investments until things start to pick up would be smart. I'm not taking about switching investments after they have already taken a big hit, that doesn't make sense. But if one was to move money from high risk investments to money market funds or something BEFORE the market falls significantly, avoiding the loss on that money, wouldn't that be the best bet? I understand it's a long term strategy but it really seems to make sense to me to do something like this if the market is going to experience a large correction. I'd continue to save money, and although not earning a lot on it, at least it's not going to lose. I just can't imagine that stocks are going to continue to climb like this forever.

And I understand that a recession can be a good thing, for those who already have money to invest. I would love to invest in funds when they are low, but I don't want to ride it from the top to the bottom. Why not move those funds out of high risk and into low risk, then back into high risk once the worst of the recession is over?

No, no, no. You are describing market timing, which is a fool's game.

Seriously - go read the page that I pointed you at a few responses ago...

[cpparrot]

I tried to limit my losses as you were describing several years ago and it didn't work for me for 2 reasons. Several of the funds in my 401k restrict buying back into the fund for a set amount of time after selling. I can't remember if it was for 60 or 90 days, but it was long enough that I forgot about trying to time getting back into it. When I could move money back into the higher risk funds, I couldn't get myself to pull the trigger. I became so adverse to any risk after watching my overall value drop 5 figures, that I waited too long to move it back in and missed out on some very large gains.

My funds eventually recovered all of the losses, but it took much longer than if I had just stayed the course and left it alone.