Should I Change My 401(k) or Retirement Investments?
Are you considering switching around your 401(k) or retirement investments? Someone recently asked me if she had done the right thing by reallocating all of her money in her 401(k). TIAA-CREF manages her company’s 401(k). They primarily offer the employees 4-5 predefined options that can include domestic or international stocks, bonds, or real estate. Based on the mix, the 4-5 predefined options are given a classification, ranging from conservative to aggressive. The woman had moved all of her money from an “aggressive” predefined mix of funds to “ultra-conservative” money market funds.
She is not alone in this concern. I have heard others ask if they should reallocate how their retirement is invested or sell off certain investments entirely. Given the major swings—generally downward—that we have seen recently in the market and the overall economy, it is understandable that people would look for something safer, something guaranteed.
Market fluctuations can be painful. I’ll admit that I don’t check on my investments as much as I did six months or a year ago—the results aren’t as exciting. However, I also haven’t changed my strategy either, which is to invest in mutual funds that I think will do well over the long term, meaning at least five years.
How do we keep calm, and even optimistic, as we roll on these tempestuous market waves? For one, I would suggest spending less time watching the news, but I find it even more useful to ask myself a question: “Do I really think that my investments will be worth less than what they’re worth now, when I am ready to sell them?”
If the answer is “No,” why not stay with it? If the answer is “Yes” and is causing me to move all of my investments around, then along with getting out now I may want to buy a year’s supply of food. This assumes that most all of your other options are going through the same slump, which is generally the case with the current market.
Again, in the current economy, it’s easy to understand the desire to find a guaranteed return. Still, use caution when considering pulling all of your money out of one investment to put it in a “safer” place. If you’re like 99% of the rest of us, doing so right now will mean that you bought high and sold low. While it can be a little gut-wrenching to see your retirement or other investments way down in value, just ask yourself this guiding principle: “When I’m ready to sell, do I think this investment will be worth less than it is worth now?”
That’s my take, what are your two bits?
In my next post, I’ll further discuss why it may be great to stick with an investment that is losing value.
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I'm Michael Crowther, and I'm passionate about sharing the peace of mind that comes from budgeting, saving (including debt elimination), and investing.
January 15th, 2009 at 5:48 pm
[...] last week’s post I wrote about the guiding principle I use when trying to decide whether to stick with an investment [...]