Move 401k to stable value and lose no more principal

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jamesamc
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Move 401k to stable value and lose no more principal

Post by jamesamc »

Hello all, been a year since last post but have an idea and I would love some feedbag. I'm wondering if it's not such a bad idea to take my wifes 401k balance of appx 200k ( was appx 220 prior to recent correction ) and simply move all to a Stable Value Fund which essentially has zero chance of principal loss ( currently all in 2020 TDF as she will probably retire about then ). My thinking with 401ks has often been why take any risk since the return is already there with tax savings, company match and a wee bit of interest from feds. Am I missing something with this philosopy? Responses are greatly appreciated
mizchief
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Re: Move 401k to stable value and lose no more principal

Post by mizchief »

What is the yield of the stable value fund?
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BL
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Re: Move 401k to stable value and lose no more principal

Post by BL »

Have you looked at a nearer date such as 2010 or target retirement income? Hate to see you cut out every chance of keeping up with inflation, but do what you have to do. Do you have enough for retirement saved?
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David Jay
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Re: Move 401k to stable value and lose no more principal

Post by David Jay »

Stay the Course!

This isn't the time to go weak-kneed. You are just looking for a rationalization.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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jamesamc
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Re: Move 401k to stable value and lose no more principal

Post by jamesamc »

thanks all for the input; yield on stable value fund for past 12 months is +2.03 whereas TDF 2020 lost .31 and I don't see why with only 5 years until retirement my wife should see her 401k tank. She contributes the max plus catch-up and employer has a generous match. Maybe I am feeling a bit timid these days but it seems to me that the company match is a good return just by itself; why let the unknowns of the market take that away plus the hard earned contributions she is making. I am retired with pension and SS and she will have both as well but this $200k is all the retirement savings we have ( or at least have it for now ). Again I am fully aware that I may be gun shy at this point but years ago we did see the account cut in half and don't want to let that happen again
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GerryL
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Re: Move 401k to stable value and lose no more principal

Post by GerryL »

Your wife isn't suddenly going to need to cash out her 401k the day she retires. If it is in a 2020 target date fund, it should be on a glide path to a retirement-appropriate AA and should include some opportunities for continuing growth. By selling the shares now you would be locking in any losses.
visualguy
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Re: Move 401k to stable value and lose no more principal

Post by visualguy »

GerryL wrote:Your wife isn't suddenly going to need to cash out her 401k the day she retires. If it is in a 2020 target date fund, it should be on a glide path to a retirement-appropriate AA and should include some opportunities for continuing growth. By selling the shares now you would be locking in any losses.
Right, but she may be better off selling than losing even more money... There's no guarantee that she can sell for more before the money is needed.
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saltycaper
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Re: Move 401k to stable value and lose no more principal

Post by saltycaper »

A year ago you probably knew that stocks could go down, but given your projected pension and SS income must have thought that investing in the target date fund was a reasonable strategy. If your pension and SS situation has not changed, if you weren't completely wrong in your calculations, and if you didn't experience a life-changing event, I don't see why you'd quit now just because of the recent decline.
Quod vitae sectabor iter?
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Miriam2
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Re: Move 401k to stable value and lose no more principal

Post by Miriam2 »

jamesamc wrote:Hello all, been a year since last post but have an idea and I would love some feedbag. I'm wondering if it's not such a bad idea to take my wifes 401k balance of appx 200k ( was appx 220 prior to recent correction ) and simply move all to a Stable Value Fund which essentially has zero chance of principal loss ( currently all in 2020 TDF as she will probably retire about then ). My thinking with 401ks has often been why take any risk since the return is already there with tax savings, company match and a wee bit of interest from feds. Am I missing something with this philosopy? Responses are greatly appreciated
I did precisely that in 2008. I'm sure it was not the financially "proper" thing to do and please don't tell the Bogleheads :happy but I was simply too close to retirement and remembered too well the downturn of 2001 and knew that I had not set my 457b asset allocation conservative enough for being 8 years away from retirement and kicked myself for that and had no time to adjust it and when the smoke signals and tom toms started up in 2008 I moved my stock-heavy 457b into the 457b stable value fund which paid a decent 4%+ return at that time.

What I kept hearing was my father's voice from childhood (he was an old-fashioned stock picker back in those days) - "preserve your principal."

BUT, what I also probably should have done and did not do was open up an additional new fund in my 457b with a proper asset allocation, stop any new contributions into the stable value fund, and put all new contributions into my new fund so I was buying low :wink:

The whole thing was probably not financially smart, but I simply could not lose my retirement money that close to retirement - and 8 years from retirement was too close for me. I wanted to live and sleep without that awful stomach churning feeling worrying about my hard earned money. I am relieved I did it.

Last year there was another post by someone who did this - he viewed it not as selling and buying but as moving his funds laterally into a safer investment so as not to lose any more money, to stop the bleeding. I'm not sure what he then did with his "preserved" funds, whether he just kept them there and bought new funds with new money or whether he would move them back into action when the going looked good, which is of course controversial.

One difference with your fund however is that you are invested in a Target Date fund; I was in a too-heavy stock fund. Seems to me your Target Date fund should have an asset allocation that is more appropriate for your wife's age and to weather the bear markets 4 years out from retirement.

I understand this dilemma as we move closer to retirement. I'll bet many people have these same thoughts. I think that's why Taylor often says that determining one's right asset allocation is the most important decision we can make.
CoAndy
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Re: Move 401k to stable value and lose no more principal

Post by CoAndy »

If you are definitely looking to do something like that, why not leave her 401(k) invested as is, allocate all new contributions to the Stable Value Fund, and then wait until the market comes back to move the rest over? At least this way you don't lock in an y losses by selling low.
scone
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Re: Move 401k to stable value and lose no more principal

Post by scone »

^ I agree. Put the new money in Stable Value, but don't sell stock right now. Also, increase your savings rate post-tax, that is, out of your paycheck. Put that money in CDs. Having a few years worth of expenses in cash means you aren't forced to sell to raise cash in retirement. This will definitely reduce the butterflies in the stomach, I guarantee.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore
soupcxan
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Re: Move 401k to stable value and lose no more principal

Post by soupcxan »

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Raiddinn
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Re: Move 401k to stable value and lose no more principal

Post by Raiddinn »

Don't move to stable value.

Consider increasing your rainy day fund and/or conservative investments so you don't have to withdraw from stocks at the wrong time.
Jack FFR1846
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Re: Move 401k to stable value and lose no more principal

Post by Jack FFR1846 »

How about putting all new retirement contributions into a bond index fund or the closest thing to it that you have access to? This builds relatively safely without bailing when the market turns up again.

I'm always concerned about locking in losses. Jumping out of stocks and into stable value is locking in the losses.
Bogle: Smart Beta is stupid
dbr
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Re: Move 401k to stable value and lose no more principal

Post by dbr »

jamesamc wrote:thanks all for the input; yield on stable value fund for past 12 months is +2.03 whereas TDF 2020 lost .31 and I don't see why with only 5 years until retirement my wife should see her 401k tank. She contributes the max plus catch-up and employer has a generous match. Maybe I am feeling a bit timid these days but it seems to me that the company match is a good return just by itself; why let the unknowns of the market take that away plus the hard earned contributions she is making. I am retired with pension and SS and she will have both as well but this $200k is all the retirement savings we have ( or at least have it for now ). Again I am fully aware that I may be gun shy at this point but years ago we did see the account cut in half and don't want to let that happen again
How much money are you going to need from this account over the course of your retirement? If the answer is little or none but it is a reserve for contingencies and you want to be sure it is there, then moving everything to stable value would make sense. If you are eventually going to need to withdraw money to fund expenses you are going to have to estimate whether or not you need to take risk to make that investment grow in the meantime. An important consideration is whether or not your pensions are inflation indexed or will be cut away by inflation as time goes on. In that case investing only in the stable value fund may be the ultimate bad risk.

There are retirement planning tools where you can explore how the alternatives might develop.
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