Don’t let your 401(k) get Ubered

Corporate earnings are the best in the last 24 years. Over 80% of reported earnings to date were about analysts’ expectations. In the last two weeks, we have had the best corporate earnings announcement since 1994.

Weren’t the late 2017 corporate tax cuts going to propel company earnings later in 2018?

With all this recent good news, the U.S. stock market is stuck in neutral. The stock markets are down a meaningful amount since corporate earnings announcements began on April 12th.

When everything is going well in the stock markets, buyers and sellers function normally. When there is increased volatility and concern about the future, the buyers disappear and the sellers take over.

When there are more sellers than buyers, what happens to the price of any good or service? You guessed it; the price goes down.

Think about Uber's surge-pricing model. When Uber gets busy, you pay more for their ride sharing service.

When the stock markets have more sellers than buyers at current price levels, you are required to make principal preservation decisions on your 401(k) retirement nest egg.

When the stock market stop going up, you have the same choices you have with an Uber ride. You can elect not to pay a higher price for the ride. And you also have to accept the consequences of that decision.

Large institutional sellers use algorithms to sell. Your company 401(k) retirement plan mutual funds are the ultimate victim.

Regardless of your desired retirement date, there is no reason on earth to lose large chunks of your company 401(k0 retirement plan principal only because mutual funds are required to sell their stocks.

Set a risk tolerance limit on the stock market losses you are willing to accept over the near term. Have a plan, and make a choice, in how your company 401(k0 retirement plan account is managed.

Ric Lager
Lager & Company, Inc.