401K Investing Ideas for Good Money Management in 2015-2016
Here we cover some 401k investing ideas for 2015, 2016 and beyond, because good money management in this time period could make or break your plans for retirement. Why have most investors done just fine in these plans in recent years when few truly pay much attention to asset allocation or money management? Let’s take a look at a few 401k investing ideas you might want to consider now.
Asset allocation is the name of the game in 401k investing, and most plans offer three or four BASIC choices. In order of risk from highest to lowest they are: stock funds, balanced funds (like target retirement funds), bond funds and money market funds. Some also offer a safe stable account that pays interest. Target retirement funds are quite popular because they do the money management and asset allocation for you based on what year (like 2040) you plan or hope to retire. With these funds you don’t need investing ideas; you just keep buying and holding, right? Think again.
For the past few years stock funds have been king due to a strong stock market, but bond funds (with less risk) have produced good steady returns for many years. Target funds with higher retirement dates (our example being a 2040 fund) have performed almost in addition as stock funds for the past few years for one reason. Their specialized money management consists of owning mostly stock funds in their portfolio, with the rest invested in bond funds. What would happen to your 401k investing results if the stock market fell with interest rates rising in 2015 and/or 2016 as expected? You would likely suffer losses in everything except money market funds and stable interest-paying accounts.
The meaningful to good 401k money management is to avoid heavy losses, especially as retirement nears. Falling interest rates has been the trend for over 30 years. When rates fall bond funds make money. When rates go up they lose money. Many investors who are presently into 401k investing have experienced meaningful losses in stock funds over the years, but few have truly lost money in bond funds. Sometimes the best 401k investing ideas focus on getting higher returns. For 2015 and beyond defensive investing ideas geared to protecting the value of your portfolio may be more appropriate.
First, look at your last statement and see where your money is. In other words, look at your portfolio asset allocation percentages. The allocation percentages might wake you up to the fact that you are more heavily invested in stock funds or target funds than you thought. Stock funds went up in value over 100% in this last bull (up) market. We’ve had two bear (down) markets in the past dozen or so years that clipped stock fund values in half, after big run ups in stock prices. One of the best investment ideas for good 401k money management in 2015 and beyond: if you are not comfortable with your comparatively high asset allocation to stocks reduce your holdings.
Bond funds and near-term target funds (like target 2020 or less, which invest quite heavily in bond funds) aren’t quite as safe as most investors think they are. If you have relied heavily on them in the past, don’t let complacency cloud your money management judgment. If interest rates rise considerably in 2015 and/or 2016 bond funds will hand investors the first big losses they’ve had since the early 1980’s. If your asset allocation to these funds it high you might want to cut your holdings, just in case.
The truth of the matter is that good investing ideas and opportunities that will make you more money are few and far between these days. The stock market could continue its upward trend and interest could keep near record lows for years to come. But we’re talking 401k investing here, and your future retirement could be at stake. So, what good investing ideas are there for the money you take from your 401k stock, bond, and target funds?
Your 401k plan should have a money market fund and possibly a safe stable account that pays interest. Both are safe havens and good investment ideas for cutting portfolio losses if times get tough. At today’s low interest rates money market funds pay next to nothing, but their payout automatically increases as rates go up. Do not overlook your plan’s stable account if one is obtainable to you. You might be able to get 4% or so in interest. You can’t find a better safe rate anywhere else.
Let’s say your 401k account is worth $100,000. Would you rather risk losing half of that or half of a lesser amount like $50,000? Good money management and asset allocation require planning. Don’t ignore your 401k. In the future when the stock market is lower and interest rates are higher investing ideas and opportunities will again be abundant. For 2015 and perhaps 2016 the best investment ideas will be geared to increasing the safety and cutting the risk in your 401k asset allocation.