I am making a move that I have never done before, I am going to proactively respond to what may be considered a heated market. I will say up front that I am not fully convinced it is 100% the best move ever which is why I am only taken a limited stance. The market is pretty ridiculous these days hitting new all-time highs every few days. Overall the market is up 25% from 11/4/12 to 11/4/13
I have stated before that I am not a huge fan of my 401(k), but it does make up a good portion of my net worth. As such it is only responsible to at least pay attention to it rebalancing and reallocating the portfolio once in a while. Year over Year my return is significantly less than the index fund above:
Interestingly if you compare my 401(k) which is rebalanced and in active funds I am way up since 2008 (19.58% vs 44%):
Granted, I may not be using the exact index measurement but I digress. With such a heated market, I figured maybe now was a good time for the next 2 – 4 months to take my paycheck contributions and put it into cash. I am not convinced enough that the market is overheated to start selling my shares, but maybe I can get some cash and wait for a correction
Why I like taking a Proactive Move in my 401(k)
To me there seems to be 3 possible outcomes (with gradations of course):
- There is a market correction and I take my grand or two and put it back into the market saving a few percentage points.
- There is no market correction and we stay flat I then decide what to do in a few months. Likely this would mean reallocating the cash position into a new rebalanced and reallocated 401(k).
- The market continues to fly high. At some point I can either leave my cash position as is and just reallocate future contributions or I can sell the cash position and get back fully into the market.
I am not convinced enough to sell out of my positions so the move I am taking isn’t terribly huge in comparison to my actual account (just a few months of contributions going into cash). It is a controlled way to follow my gut.
Why this is a Terrible Idea
A few months of taking a cash position won’t significantly impact over the long term if the market does go higher. So why bother? Over the long term will creating a cash position really matter? Meaning, in 10 or 20 years will missing this correction in terms of a few months of contributions even be noticeable? I am not sure.
I am still moving forward because it feels like I am staring at an oncoming collision and not doing anything about it!
Ever make a move like this in your 401(k)?