Could you start doing conversion rollovers to a Roth IRA or just roll your 401(k) to an IRA so that you have more options on how you want to invest? Not sure if that is an option for you.
The other thing to do is to trust your asset allocation and remind yourself that you are investing for the long term. If you didn’t need access to that money in the short term, what has changed for you financially? Are your pensions at risk?
If not, maybe sit tight and remind yourself the market goes up and down, and none of us can read the tea leaves as to what will happen in the future.
As anyone who has followed this thread for any length of time will know, I am not some titan of finance. But I am pretty good with psychology and people and their finances.
I think this downturn has really called everyone’s bluff on what level of risk we thought was fine. If you truly don’t think that you’ll need to touch the 401k, why do anything? The old saw about time in the market vs timing the market is accurate. Why not give your 401k time to recoup?
But maybe the downturn has taught you that you didn’t have enough in cash for your comfort. If that’s the case, then I can see making an adjustment.
I look at the total assets invested, both spouses, all accounts, and then parcel them out according to your desired AA. That way you can put the higher growth assets into a Roth, the fixed income stuff in the IRA/401k, and non-dividend equities in your taxable account. (Assumes you have an Emergency Fund readily accessible.)
By looking at totality, for example, hubby’s 401k might contain all of your combined fixed income, while your IRA is Total Stock market and your Roth is high growth tech.
And then ‘stay the course’. (John Bogle)
But, If you are uncomfortable sleeping at night during this market turbulence, then your AA is too risky for you, and your plan should be revised by raising the fixed income portion.
btw: govt MMF are about as safe as one can get. If you swap out to more cash now, will you be kicking yourself if the market bounces back next quarter if Trump gets 5+ major countries to make a deal on tariffs?
That is a good idea. I don’t want to pay the taxes for a Roth conversion, but I did set something up so I can roll as much of my 401K into an IRA as I like. I haven’t used that option yet, but at least I have set it up and ready to go.
I honestly don’t know about my asset allocation. We always went as aggressive as possible since we didn’t depend on this money. But we do have real estate assets and some in high yield money market funds in a Roth.
I never questioned the stability of our pensions before, as our company has been considered to be very stable, and a bulwark of the economy. But they are very dependent upon international shipping, particularly with China, and with much of their profits over the years, they’ve been throwing billions into stock buybacks instead of paying off debt or shoring up pension funds any more than required. First time in a long time that I’ve heard concern from my ex co-workers about the pension. If the PBGC takes over, it’s a big cut. And can one even trust that payout to be there?
And there lies the big question. Are they satisfied with depressing the world economy and raising prices for consumers in order to get a small number of manufacturing jobs back to the US, or are they going to declare victory over the world and have life go back to normal? Who knows, and will it be too late if this takes months? But I fear that much of this is here to stay, and if so, there will be many corporate bankruptcies. Would I be more annoyed if I sold early and the market skyrockets, or if I didn’t sell soon enough, and the market crashes? That’s pretty much what it comes down to.
To consider what @Youdon_tsay mentioned, maybe the downturn has taught me that I don’t have enough in cash for my comfort.
Interestingly, because of pensions and SS, I didn’t think we needed that much of a cash reserve as, in theory, so much of our retirement income is fixed. And, like you, we hope to never touch our 401k/IRA retirement funds.
But let me tell you, when things crashed last month I was so happy to have so much money sitting in a high-yield savings account. Now, much of that money is “spoken” for – $50k for a car purchase in a few years, for instance – but knowing that we could access it right away if things really went south was a huge comfort.
I think the confusion right now is - wht exactly is the risky part? Used to be equities, now it might be the munis? Up’s down and down’s up - no one quite knows what to do so it is very anti-SWAN, no matter how risk averse you think you have made your portfolio. So, I’m just holding, while my husband moved all of his 401k into money market accounts before the downturn and thinks he did well since he didn’t lose nearly as much as me but should me move it back to neutral mix now?
still not sure why the concern about munis? Do we think states or local governments are gonna go bk bcos the federal government is playing with tariffs?
Another option besides MMF is ultra-short term bond funds. (My crystal ball said inflation is coming in a big way, so I moved nearly all of my bond funds into ultra-short bonds back in early 2021. First time I had market-timed in 30+ years.)
I believe the concern of all fixed income investments is the fear of inflation outstripping the coupon and the Fed then raising rates to battle inflation, without getting into default risk. With Muni’s there is talk of taxing them at the federal level which will adversely affect their value since they are currently valued and have their coupon set based on after tax returns compared to taxable instruments.
Super short term government instruments/funds are probably the best place to park cash – interest rate risks are minimized and there is close to 0 principal risk. If you believe US Treasuries/obligations are at principal risk, time to bury gold bars in the backyard and stock up on MRE’s and ammo.
Historically people who try to time the market and sell equities near time of a decline usually get the timing wrong. They usually have overall returns worse than if they had simply kept their investments and not done anything. I recall one Vanguard analysis that reviewed why investors average astoundingly poor returns compared to market indexes, and found this type of market timing was a key contributing factor.
This particular decline hasn’t been severe so far for many persons who are well diversified beyond just US equity. For example, VT invests in the market cap of the total world, which is currently 63% US / 37% non-US. It’s up ~1% so far this calendar year (including dividends). If an investor was instead 100% S&P 500, they’d be down 3-4% for the year – not a large loss by historical standards. My portfolio is up for the year, so it doesn’t feel like a severe decline for me. I haven’t changed my investment strategy (besides incorporating tax lost harvesting), and I don’t plan to.
Regarding whether government money markets are safe, the market and major brokerages still treat treasury products as one of the safest possible investments. This is a fundamental basis of most financial products. In the event that the US government collapsed or stole treasury product funds from investors, I’d struggle to think of any 401k investment option that would not be severely impacted. In this type of event, there would likely be bigger things to worry about than 401k losses.
Perhaps a more realistic scenario is a money market breaking the buck. This happened with the Reserve Primary Fund in 2008 during the Global Financial Crisis when big banks were failing, including Lehman Brothers, which composed a portion of this money market’s assets. The price of the money market dropped from $1.00 to $0.97, causing some investors to have a relatively small loss prior to lawsuit recuperations. I am not aware of any US money market funds breaking the buck in the 17 years since then.
I remember when everyone was pointing to the inverted yield curve (which historically is a strong indicator that a recession is imminent) and predicted a recession. Hasnt happened yet.
nope, I only swapped my medium and long term bonds for ultra short bonds, all in a tax-deferred account. I didn’t change my equity allocation materially, but I did increase it slightly given that I was feeling more secure against the inflation risk. So, I benefitted from the market up turn.
But, as noted earlier, I’ve have been a ‘Stay the Course’ investor for 30+ years. This is the first time I have ever deviated from that. It worked out well for me, but don’t plan on doing it again. (I just strongly believed that Govt spending had gone way beyond that needed to recover from Covid. A hat tip to Larry Summers.)
My spouse and I don’t make a lot of money nor do we have a big portfolio (though we’re on-target to retire at 60 if we want). We’re not very risk-tolerant but have invested pretty aggressively in an attempt to make up for our poor earnings for so much of our lives.
For years we had 100% in equities. Sometime in our 30’s we started diversifying. For my spouse, that means put 100% of new contributions in a lifecycle fund and think about it as little as possible. That fund’s equities are split 70/30 domestic/foreign (though my spouse would never be able to tell you that info).
I manage our finances and like to set my own AA. I like the boglehead philosophy and keep it simple. I reassess my own AA yearly such that the overall AA across our accounts is where I want it to be. My equities portion is 60/40 domestic/foreign. Our portfolios have fared better in this downturn than I’d feared they might.
I thought a lot about whether to change anything with our investments. While I wish we had some money available to made additional investments right now, our budget is too tight for that. I realized I don’t want to move in either direction with our AA, which seems like a good sign that it’s appropriate for us.
The only change we’re making is that I’ve started to use YNAB (budgeting software). It’s zero-based budgeting and is the only way I can think to reduce our expenses meaningfully at this point (we don’t have much fat to trim). I’ve always tracked our expenses retrospectively, but I’m eager to see if a detailed prospective approach will help with the even bigger upcoming financial squeeze we’re expecting to experience. I was worried about my spouse buying into using YNAB, but when we talked finances recently and I floated the idea, it went over really well. We’re at a loss as to how to move the needle in any other way, though my spouse is increasingly considering looking for a higher paying job (an ongoing deliberation for years). I’m going to spend the next week getting YNAB fully set up. If we like it, I’ll get the kids set up with it too since it would be free and they’re nearing financial independence.
I manage my mother’s finances. She doesn’t have much in investments, but her house is worth a lot. I’ve had her money very conservatively invested and I’m grateful for that right now. She has only a small amount of equities, and mostly has individual CDs/bonds and gov’t money markets, and no bond index funds. Since her SS/pension income is too low, last year I bought her a large SPIA, and I’m feeling great about that decision. This downturn has been barely a blip for her portfolio, which is perfect for that particular 80-yo.
We’re not interested in trying to time or outsmart the market, just staying the course and working to change only the things that we can control in this time when we feel anxious about things we can’t control. But dang it’s tough.
I was able to keep my money allocated “as it was” through many market ups and downs, including the 2008ish downturn where the market lost a LOT. However, now things seem to be happening without any logical reasons I can understand, and at the whim of just a couple of people. I feel like it’s “different” than other times, and I told myself I should move money and kicked myself for not moving money before the recent quick descent. I, like @busdriver11, am thinking I should pull more out of the market, although I only had about 70% of my retirement money in stocks at the start of the year, not 100%. (I do have another “pile of money” that’s invested in mostly stocks, but it’s less than 25% of my overall funds and I don’t manage that money myself).