Here we cover some 401k investment ideas for 2015, 2016 and beyond, because good money management in this time frame could make or break your retirement plans. Why have most investors done well in these plans in recent years when few really pay much attention to asset allocation or money management? Let’s take a look at some 401k investment ideas that 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 options. In order of risk from highest to lowest, they are: equity funds, balanced funds (such as target retirement funds), bond funds, and money market funds. Some also offer a secure stable account that pays interest. Target retirement funds are quite popular because they do money management and asset allocation for you based on the year (such as 2040) in which you plan or expect to retire. With these funds you don’t need investment ideas; you 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 stable returns for many years. Target funds with higher retirement dates (our example is a 2040 fund) have performed almost as well as stock funds over the past few years for a reason. His professional money management consists of owning primarily equity funds in his portfolio, with the remainder invested in bond funds. What would happen to your 401k investment results if the stock market fell with interest rates rising in 2015 and / or 2016 as predicted? You are likely to suffer losses on everything except money market funds and stable accounts that pay interest.
The key to good 401k money management is avoiding big losses, especially as retirement approaches. Falling interest rates has been the trend for more than 30 years. When rates go down, bond funds make money. When rates go up, they lose money. Many investors currently in 401k investing have experienced significant losses in stock funds over the years, but few have lost money in bond funds. Sometimes the best 401k investment ideas focus on getting higher returns. For 2015 and beyond, defensive investment ideas aimed at protecting the value of your portfolio may be more appropriate.
First, look at your latest statement and see where your money is. In other words, look at the asset allocation percentages for your portfolio. Allocation percentages may wake you up to the fact that you are more invested in stock funds or target funds than you thought. Stock funds rose more than 100% in value in this latest bull market. We’ve had two bear markets in the last twelve years that cut stock fund values in half, after big increases in share prices. One of the best investment ideas for good money management 401k in 2015 and beyond: If you are not comfortable with your relatively high asset allocation to stocks, reduce your holdings.
Bond funds and short-term target funds (such as the 2020 target or below, which invest heavily in bond funds) are not as safe as most investors think they are. If you’ve relied heavily on them in the past, don’t let complacency cloud your judgment about money management. If interest rates rise significantly in 2015 and / or 2016, bond funds will give investors the first big losses they have had since the early 1980s. If your asset allocation to these funds is high, that is you may want to cut back on your holdings, just in case.
The truth of the matter is that good investment ideas and opportunities that will earn you more money are few and far between these days. The stock market could continue its uptrend and interest could remain near record lows for years to come. But we’re talking about a 401k investment here, and your future retirement could be at stake. So what good investment ideas are there for the money you take from your stocks, bonds, and 401k target funds?
Your 401k plan should have a money market fund and possibly a stable and secure account that pays interest. Both are safe havens and good investment ideas to reduce portfolio losses if times get tough. With today’s low interest rates, money market funds pay next to nothing, but your payment automatically increases as rates go up. Don’t bypass your plan’s stable account if you have one available. You may be able to earn about 4% 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, investment ideas and opportunities will once again be abundant. For 2015 and perhaps 2016, the best investment ideas will be geared towards increasing safety and reducing risk in your 401k asset allocation.