Retirement is probably the number one thing most older Americans worry about. The posts in this category are about retirement and qualified planning. Retirement accounts are often referred to as qualified because that is how they are usually classified by the IRS.
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)?