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What to do with 401K

January 31st, 2013 at 03:25 pm

After I posted yesterday Snafu asked what I considered a "safe" investment for my 401K. About 300K of my 400K 401K (lots of Ks, huh?) is sitting in cash! I pulled everything back to cash about 4 months ago as I worried that the fiscal cliff thing would cause everything to drop. I know that was a BAD move as the stock market has done nothing but increase since then.

Now I am scared to get back in as it seems to me the stock market may be about to go down again. That is the problem. Never pull out because it's tough to know when and how to get back in.

Suzi Orman, who I watch regularly, urges risk averse people like me to go into shorter term municipal bonds. She says interest rates are about to rise so stay in short term bonds only. I know to get the growth though we really need to be partially invested in the stock market, but I only have 10 years until retirement. Also, I lost about 75% in the 90s in the high tech bubble so I am scared.

I actually got to talk with Suzi on her show about two years ago where she urged me to put everything in muni bonds due to my fear. I now wish I had done that. I only put 100K into the 5% bonds. Even with the growth of the market I would feel a lot safer with a fairly guaranteed 5%.

I have also been seeing quite a few documentaries about mutual funds that are really ponzi schemes and the fact that the Securities and Exchange Commission really doesn't do much. It is all frightening. I'm sorry, but if they want us to invest for our retirement, the government should at least have enough oversight to keep us safe from crooks!

Does anyone have any ideas on safer 401K investments? I have lots of leeway in my 401K and can invest in just about anything.

6 Responses to “What to do with 401K”

  1. Nika Says:

    If it is in 401K your options are limited by what your employer offers.
    Or did you roll it to an IRA already?

  2. ceejay74 Says:

    You're right about one thing -- don't try to time the market. Although you likely lost a lot by pulling out during fiscal cliff negotiations and missing these recent gains, you probably won't win anything by trying to time your re-entry. Just get back in there as fast as possible. Yes, they'll go down again -- and up, and down, and up, and down. You have to be courageous and wait these things out.

    Your best bet is to pick a target date fund with your employer, one that automatically rebalances. Then sit on your hands every time you get itchy and want to pull out of the market again. Smile
    Just my 2 cents -- I'm not a professional, but this is what I've read everywhere.

  3. Petunia 100 Says:

    I wouldn't buy munis in a tax-sheltered account. Munis typically pay lower than market interest, the exchange is they are federal income tax free (possibly state too). Inside a tax-sheltered account, you lose the advantage. If you want to buy short term bonds, buy short term treasury and corporate bonds, not munis.

    Why not start slowly moving back in? Move 3k or so each month until you get to your desired stock allocation. Since you're not retired yet, at least half of your money should be in stocks, IMHO.

    You've done a good job saving/investing. I see from your sidebar that you have significant real estate investments as well as this 401k money. That's awesome, good for you. Smile

  4. scfr Says:

    What about something fairly conservative like the Vanguard Retirement Income fund? I'm in that fund even tho like you I'm over 10 years away from retirement. I like to sleep at night and I don't need aggressive growth to reach my retirement goals. With this fund I don't mind the ups & downs and am happy to just sit tight. Also, because of my husband's business, we have significant financial risks outside of our traditional investments, so when it comes to the IRAs and 401Ks we go more conservative than most. I see that you are a business owner and have many rental properties, so I don't see you as a risk-averse individual AT ALL. I see you as someone who prefers to put your "riskier investments" in places where you personally have more control and oversight.

    https://personal.vanguard.com/us/funds/snapshot?FundId=0308&...

  5. SavingsQueen Says:

    Petunia,

    Thanks so much for that advice to get back in slowly. This weekend hubby and I plan to sit down and tackle this thing and getting in slowly is the only way to go.
    You were also right about the muni bond issue. It was interesting what you said about corporate bonds. Makes sense.
    Scfr, I also liked your recommendation on the Vanguard Income Fund. I am TERRIBLY risk averse!! I would be happy with lower but steadier returns. I have been burned by three market crashes over the years. They are no fun and seem to happen about every ten years. I will sleep better at night being in something safter.
    Nika, We have my 401K in my small company's plan which gives us WAY too many choices. Used to think that was a good thing, now really don't like it. I sit looking at all the choices and can't decide on any one thing. Arrgh!!!

  6. snafu Says:

    I'm sorry you lost 75% of your investment in the tech bubble. It's never a good idea to invest more than a small percentage of holdings in a high risk sector which is more like gambling than investing. You need to understand what you are buying and why you are buying it.

    Would it help to look at the top 10 holdings in Vanguard's Dividend Fund to see if they are mostly names of major companies whose names you recognize. A Dividend Fund by a well run, low cost Mutual Fund pools investors funds to buy stock Index Fund that follows the market via Dollar Cost Averaging [DCA].

    One of the most important principals of investing for the long term is 'asset allocation.' It means to divide assets into different categories as the market can roller coaster Bonds up, Stock down, International's Down, Bonds down, Stocks up sector by sector...makes us crazy!

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