Why Bailing From Your 401(k) Is A Bad Idea Now

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COVID is still out there and will not go away. Inflation is very high. Interest rates may rise. Is this a good time to exit the stock market?

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I’m not one to predict where the markets are going and what’s worse is to tell people to move based on bad news.

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When the “animal spirits” of the market tell us to run away from the saber-toothed tiger of fear, we want to sell and hide everything. Yet markets are not carnivorous animals. Often the best thing to do is to stand your ground and wait.

I’ll cut to the chase: you must be Buying In a down market. You are not only staying the course, you are buying more shares (in mutual funds, usually) at lower prices.

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Buying, Rights. seriously? Yes. This really makes sense if you are a long-term investor, meaning you have at least 10 years until retirement.

Unfortunately, millions of people are not doing this. they often Sell in the fall – and locking in their losses. According to descent index In 401(k) trading activity, during a volatile period in the past it showed “the second highest trading multiplier in the history of the recent 11.37 times average trade-elites index”.

Here are some other volatile periods in the past:

  • January 22, 2008
  • February 5, 2018
  • February 27, 2020

Look, I’m not saying you shouldn’t protect your portfolio. Things can get worse before they get better. But you need to establish some criteria:

1) Will your portfolio need to pay for living expenses within the next five years? If so, you should consider some changes that put more assets into guaranteed income and principal vehicles.

2) Do you have flexibility? Many people think they are going to fully retire at a certain age, then realize they need to work. You may want to leave a job or profession on a certain date, but you can still do something. Remember, the longer you wait to collect social Security, the higher the benefit – up to the age of 70 years.

3) Your plan – and of course needing one if you haven’t – should reflect the amount you save based on your lifestyle. You can always reduce debt and living expenses and save more. It’s a better goal to focus on right now.


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