401K

Watch out, the pension fund managers are recommending balanced funds or target funds as the default for 401k investing. What is a balanced fund anyway? A balanced fund is a mutual fund which uses an asset allocation model of 60% equities and 40% bonds & cash for its portfolio makeup. What is a target fund? A mutual fund with 80% (or 90%) equities and 20% (to 10%) bonds that mature the year that you retire. These target funds are supposed to become more conservative as you near your retirement date (but who can see into the future).

Ask yourself do you think the price of oil is going up or down? If the price of oil is going up, the cost of doing business will also go up…thus the net price per share will go down. Thus, this negative effect will affect all equities markets in general. Do you think the world will become more peaceful or more volatile as the year’s progress? I do not see the world getting any better over the horizon. So, if the advisor proclaims a balanced fund or target fund as being conservative in this market cycle…then the advisor should go see a neurosurgeon have his brain looked at. The old days when we were in a solid bull market (in the 90’s), you could consider a balanced fund or target fund as being conservative, but in this market cycle I would consider a balanced fund or target fund to be aggressive. Would you invest 60% of your retirement assets in a market that is so volatile it makes the era of the Vietnam War look…peaceful?

Why would you invest 60% in equities when there is a good chance those U.S. & non-U.S. equities will fall even further? What’s the point? Yes, you can get back-data to advocate the last 48 years investing in a balanced fund would support a conservative return. But, past performance is no guarantee of future performance. And the market cycle we are in is unlike any market cycle in history…so be extremely super-conservative when you choose an investment in your 401k retirement portfolio. You want your 401k portfolio to be there when you retire.

Sincerely,

John Bagwell

The Truth About Financial Products.com

www.thetruthaboutfinancialproducts.com