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I plan on investing a 401k rollover into a few Mutual funds. I will be retiring soon.
The 401k is in addition to a pension and social security. I will need about 4% a year
from the 401k to make for a comfortable retirement. Would you set a mental stop
loss on those funds in the 401k? Like if the market took a 30% dive, bail out and
then come back in when the market calms down. I know it's market timing but would
only bail when a large chunk of principal was at risk. What kind of market reversal
would make you bail?
If I was near retirement ... I wouldn't change my ratios from say 60% bond to 40% stock. If the stock market dumps 30% in a short amount of time, just sell some bonds and buy some stock funds. That way you are covered when the stock market recovers. Selling when the market is down is the exact opposite to what you should be doing.
No amount of negative market action would make me bail. In the entire history of the country, every market downturn has proved to be temporary. When you say "bail out and then come back in when the market calms down" you mean you would sell low and buy high under certain circumstances. This is backwards from the true formula, buy low and sell high. You should only get more conservative in your allocation when you are sitting on cumulative profits, and only get more aggressive when you are sitting on cumulative losses. Going through a 30% loss and then selling out is a fool's game, even though it is a very popular way to lose your money.
I plan on investing a 401k rollover into a few Mutual funds. I will be retiring soon.
The 401k is in addition to a pension and social security. I will need about 4% a year
from the 401k to make for a comfortable retirement. Would you set a mental stop
loss on those funds in the 401k? Like if the market took a 30% dive, bail out and
then come back in when the market calms down. I know it's market timing but would
only bail when a large chunk of principal was at risk. What kind of market reversal
would make you bail?
If you have everything setup properly, you would not have to bail... or even hardly worry about what the market is doing.
I plan on investing a 401k rollover into a few Mutual funds. I will be retiring soon.
The 401k is in addition to a pension and social security. I will need about 4% a year
from the 401k to make for a comfortable retirement. Would you set a mental stop
loss on those funds in the 401k? Like if the market took a 30% dive, bail out
You could...
Quote:
Originally Posted by NJFRED
and
then come back in when the market calms down.
but you won't...
Quote:
Originally Posted by NJFRED
I know it's market timing but would
only bail when a large chunk of principal was at risk. What kind of market reversal
would make you bail?
By the time you got back in, markets would be back in swing.
If I was near retirement I would move more funds into a less risky security anyways.
Feel free to try and time the market with what money you want, but get a spreadsheet and market what you would have done if you timed the market (sell and record the profit/loss). See how good you would have done if you had. I have in the past and my timing for trading was pretty off. I did do okay selling covered calls...but they exercised more often than I liked so I played them a bit more conservatively outside the simulation.
The talking heads keep talking about how foolish it is to time the market. These are the same insider idiots who did not see the Russian roulette with bad mortgages. There are a whole bunch of other idiots who are major investors and panic like teenage girls with even "news" event.
Take a look at the big picture and then invest accordingly. The stock market has been a golden goose. It continues to increase at the rate of about 1500 points/year for the DJIA. It is highly likely that will continue for at least another year or two. I am not an investment advisor, but use your judgment.
Also be highly, highly wary of those who advice for putting money in "safe" investments such as bonds. Those advisors have no sense of reality and are lost in the past. Most bonds are highly risky and also pay very little. Again, look at the big picture. Eventually interest rates will increase. You do not want to be holding bonds when rates increase.
If you are about at retirement and trying to decide on investments, I have no advice. I am in the same position and have decided to keep at least 60% in stocks. Because the stock market keeps growing, that my investment percentage keeps increasing. I will eventually "rebalance" and sell off some stocks. I will do that when there are signs of economic issues, when the average "Joe" decides to invest in the stock market and I will definitely be cautious around the time of the next Presidentical election.
If you are thinking you can cut your losses on the next downslide, well FAT chance. You and many others will lose. DO NOT plan on selling on the downside. The appropriate position is to BUY on the downside and SELL on the upside. If you are making plans to sell on the downside, you have already admitted defeat. At a very minimum be consistent.
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