401k market strategy

Investing Strategies Retirement Investing
1

Considering the current volatility I am pondering removing some portion of my 401k to safer options. I will retire in 7-10 years
Should I do that or hope that if market goes down, it will rebound before I retire

2

There is little reason to think it won’t rebound in 7 years - but no guarantee of it either.

That doesn’t mean you shouldn’t make a change if you think it is warranted. We are at near all time highs so it isn’t as if you would be selling low.

I am not a believer in market timing but I am a believer in making both strategic and tactical shifts. I recently sold all my leveraged investments (I took my foot off the gas) and parked over seven figures in a money market until I decide what I next want to do with it. I am also close to retirement.

When interest rates where zero and inflation was roaring, there was zero reason to be in bonds. If you had such, then it made sense to make a strategic change to something else. I don’t call that timing the market. The writing was on the wall.

The same could be said about now.

From two days ago here on TMF:

This brings me to the S&P 500’s rather rare move. The index, as measured by the Shiller CAPE ratio, recently rose above the level of 35 – in fact, it’s actually surpassed 37. This is only the third time since launching as a 500-member index back in the late 1950s that the benchmark has advanced beyond 35.
…
In the past, every time the S&P 500 soared past 35, a decline in the index followed.

And those declines have been steep. I am willing to give up some upside from here if it can help me avoid a sell off like the one after the dotcom bubble and whatever we will eventually call the “transitory” inflation of 2022.

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3

I can’t give individual advice. In addition, ultimately, your guess is likely at least as good as mine is in terms of what the market will do over the next few years.

That said, with an anticipated 7-10 year time horizon before retirement, now is a great time to start thinking about what comes next for you and your money.

Here are a few things to think about:

  1. How sure are you that you really have 7-10 years of work before you retire? Are you at risk of a layoff or reduction in hours that might force a change in those plans?

  2. How much money do you anticipate needing to draw from your portfolio to cover your costs once you do retire? How far away are you from having “enough” to have a great chance of sustaining those withdrawals throughout your retirement?

  3. What other sources of income will you have in retirement besides your portfolio? A pension? Social Security? Rental income? Royalties? Proceeds from selling a business? How reliable and when do those other sources start and/or end?

  4. When do you reach age 55 and/or age 59 1/2, or have you passed those ages already?

  5. Is your money in a traditional 401k, a Roth 401k, or a blend of the two? Do you have money outside of those types of plans? Is any outside money in an IRA, Roth IRA, standard brokerage account, or something else?

Regards,
-Chuck

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4

These days most of us expect to be retired for 30 years or more. You need to be mostly invested in equities to keep up with inflation. Expect your cost of living to be about 4x more in 30 years.

Best solution is a diversified portfolio. The traditional TMF method is to put 5 years of living expenses in a laddered maturity bond portfolio. Each year a bond matures and you replace it be selling some of your equities. If the market tanks you live off the bond and their interest until it recovers and replace those bonds after the market recovers.

Also consider dividend paying stocks as a source of income. Some have a long history of increasing dividends that helps keep up with inflation. And in a down market, dividend helps support share price.

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