Timing markets with 401(k) shares? Bad idea

Jack Bogle, the legendary investor and founder of Vanguard, has given the same advice for years: diversify the positions in your 401(k), buy cheap index funds, and don’t look at your monthly statements until the end of the year. But it’s hard to follow this advice in good times, and even harder when the water gets choppy.

In case you missed it, inflation fears have made investors a little nervous in recent weeks.

The markets have not collapsed yet. But the wind of correction is blowing all around us. We haven’t felt those concerns in a while, and younger investors may be feeling them for the first time.

But if you’re considering selling stocks and ETFs in your 401(k) accounts, and trying to bail out before things go bad, think again.

Any reasonable financial advisor or planner will tell you this is a mortal sin. Recent history – the last 60 years – will prove it. Market drops do happen, but you have to be able to tolerate them if you want to win the long game.

Dates from Exit Solutions, tracking the 401(k) activity of individual investors shows that 401(k) investors were particularly busy traders in 2020. Net transfers for the year as a percentage of the balance were 3.5% for the year, the highest level since 2008.

We are not smart or stupid enough to predict when this sell-off will end and the stock will resume its normal course.

No one is, and don’t believe anyone who promises otherwise. But remember that your 401(k) is not a video game or “fun money”. It is your retirement vehicle and your light at the end of the tunnel. If you want to play with stocks or time the market, get a trading account or learn to trade on our stock simulator.

Set up your 401(k) with an asset allocation that suits you based on your risk appetite and your long-term goals. It’s okay to rebalance it every now and then, but if you try to use it to time the market, you might be digging a financial hole that you’ll never be able to climb out.