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| *Ostroff, Fair and Company>>>Investing |
Is it wise to move my 401K money to bonds when the stock prices are falling? |
I am heavily invested in stocks (80%). I have heard that it is wiser to leave my money alone since the market always comes back up. I do not want to lose half of my retirement funds again, which happened about 5 years ago when the tech industry took a nose dive. Thanks! It depends on how far you are from retirement. If you are close to retirement - inside five years - then you might want to have more of your 401K funds in bonds or cash - earning interest. The further away from retirement you are, the more you can absorb a short-term fall in stock prices and still wait for the economy and stocks to recover. These are your retirement funds - this is not where you should be trying to time the markets. The key is to be diversified and not to switch asset classes to make short-term gains or avoid short-term losses. Depending on your age, maybe you should consider a more balanced approach to risk. If interest rates continue rising, the value of bonds will go down also. So maybe you can't win. "A young person should get down on his knees and pray for a stock market crash, so that he may purchase his retirement shares at fire sale prices." William Bernstein, The Four Pillars of Investing. "The fact that stock prices have fallen only makes them safer, not riskier." - The Intelligent Investor You should not make adjustments in your asset allocation based on market conditions. You want some of your assets to temporarily fall in value, so that you can take advantage of buying investments at a discount. If the market makes a major shift, the only action you should take is to reblance your portfolio to your desired goal allocation. You allocation should be based on your time horizon (or age). Download my free book on retirement investing and read chapter 3, 16, and 20. Also, read page 65. They will address your concerns and show you why you should not try to time the market. Remember, "the stock market" and your portfolio are NOT the same. Click on my profile and read my info to find my website. Ultimately, answer this question: If you do not need your retirement money for 30 or 40 years, then why does it matter if stock prices have fallen today? Don't worry about temporary falls in stock prices. They will eventually rebound. Instead, you should rejoice that new money is being used to purchase new stocks at cheaper prices. The true enemy of the long-term investor is inflation, not market crashes. Portfolios can recover after a crash. But inflation represents a permanent loss of purchasing power. A study by professor Seybund showed that 90% of the market's returns over a 30 year period came from only 1% of the trading days. It is very risky for a long-term investor to be out of the stock market. Also, remember that you pay transaction cost every time you buy and sell. This can put a drag on performance. Never try to time the market. Set your allocations for your risk tolerence and let the market take its course. As a rule of thumb you should have the same percentage in bonds and fixed income investments as your age. You won't have any idea how long stock prices will fall, so adjusting your portfolio is attempting to predict an unknowable future. It also depends on your age... if you're 60, I wouldn't have 80% of your funds invested in stocks. That past crash in value 5 years ago was mainly due to non-diversification too if most of your portfolio was tied to tech stocks, so make sure you're diversified across industries, company sizes, etc. it would be wise to get an education. wisdom is learning from the failures we've had. since you havent failed then i wouldnt consider it wise rather foolish. As a wise idea is to seek someone whos profession is in the stockmarket, not just a saleman. if its wiser to leave your money in the market since its going to come back up, then can you handle the big DIPPER when your stock drops 50% of the price you bought it for? how long will it take for the markets to recover is another thing you should ask your advisor. some stocks never recover and youre the one holding the string while your stock analyst made their money. he should have some knowledge of how the markets is going. its your money, if he cant tell you how the market is going then well youve got a story teller a real good 1 indeed. if he cant forcast the market then well what do you pay him for, other than a good story, stock markets run in cycles, which is they go up and down. if he cant tell the bottom from the top, when do you profit? buy high, sell low? how long can you stand that? |
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