Should I move my 401k to stable fund?
Stable value funds offer safety for risk-averse savers, but returns are generally low. Beware of high fees associated with stable value funds that can cut into your returns.
- Protecting Your 401(k) From a Stock Market Crash.
- Don't Panic and Withdraw Your Money Too Early.
- Diversify Your Portfolio.
- Rebalance Your Portfolio.
- Keep Some Cash on Hand.
- Continue Contributing to Your 401(k) and Other Retirement Accounts.
- How to Respond to a Recession.
Try to avoid making 401(k) withdrawals early, as you will incur taxes on the withdrawal in addition to a 10% penalty. If you are closer to retirement, it is smart to shift your 401(k) allocations to more conservative assets like bonds and money market funds.
| Fund | Expense Ratio | 10-year average annual return |
|---|---|---|
| Fidelity Nasdaq Composite Index Fund (FNCMX) | 0.29% | 15.7% |
| Fidelity Growth Discovery Fund (FDSVX) | 0.67% | 15.8% |
| Vanguard Growth Index Fund (VIGAX) | 0.05% | 14.7% |
| Fidelity 500 Index Fund (FXAIX) | 0.015% | 13% |
Key Takeaways
Higher interest rates have challenged stable value funds however, over the long term, they have historically outperformed money market funds. Now may be a good time to investigate the stable value market to determine how your plan might potentially benefit from the higher rate environment.
The worst thing you can do to your 401(k) is to cash out if the market crashes. Market downturns are generally short and minimal compared to the rebounds that follow. As long as you hold on to your investments during a bear market, you haven't lost anything.
If the dollar collapses, your 401(k) would lose a significant amount of value, possibly even becoming worthless. Inflation would result if the dollar collapsed, decreasing the real value of the dollar when compared to other global currencies, which in effect would reduce the value of your 401(k).
Diversification is an important factor, and you'll want to balance having too much in one type of asset. For example, many experts recommend having an allocation to large stocks such as those in an S&P 500 index fund as well as an allocation to medium- and small-cap stocks.
Changing Your Asset Allocation As You Age
Many financial experts suggest adjusting it as you grow older, opting for a more conservative mix as you get closer to retirement age. As mentioned above, target date funds will automatically decide this appropriate allocation for you and change as you age.
Investors seeking stability in a recession often turn to investment-grade bonds. These are debt securities issued by financially strong corporations or government entities. They offer regular interest payments and a smaller risk of default, relative to bonds with lower ratings.
Can I lose my IRA if the market crashes?
It is possible to lose money in a Roth IRA depending on the investments chosen. Roth IRAs are not 100% safe, but they offer the potential for growth over time. Market fluctuations and early withdrawal penalties can cause a Roth IRA to lose money.
It may take some courage, but increasing your contributions to retirement accounts during a recession can be a great financial move. You benefit by buying a lot more when prices are down, setting your portfolio up for future success when the economy recovers.
- Fidelity 500 Index (FXAIX): Best large-cap 401(k) investment.
- Vanguard Mid-Cap Index Institutional (VMCIX): Best mid-cap 401(k) investment.
- Vanguard S&P Small-Cap 600 Index (VSMSX): Best small-cap 401(k) Investment.
Stable value funds remain just that: stable. They don't grow over time, but they don't lose value either. In times of recession or stock market volatility, stable value funds are guaranteed.
The 15-year annualized return for stable value funds as of March 2023 was 2.99%, according to the non-profit group Stable Value Investment Association (SVIA). The same figure for money market funds was 0.55%.
Investing in stable value is subject to many similar risks of investing in fixed income, including, but not limited to, credit risk, default risk, interest rate risk, issuer risk, liquidity risk, manager risk, market risk, regulatory risk, and tax and accounting risk.
Rather, it's an investment option that will grow and fall over time. In fact, a recent Fidelity Investment's study found that the average 401(k) account balance in 2022 was down 23% from the prior year. If you constantly check your invested money, it may seem like your account balance is continuously in the red.
The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts.
Your 401(k) will make money or lose money based on the strength of the stocks and mutual funds in which you invest. Your balance is likely to drop when the market drops, depending on what funds you've chosen. Since investments are not insured by the Federal Deposit Insurance Corp.
If the dollar collapses, the result is inflation. You still have $100,000, but it won't buy you nearly as much stuff. If you are close to retirement when this happens, then you are out of luck. If you are still decades from retirement, it's best to leave the 401k alone and let it recover.
Should I cash out my 401k before economic collapse?
“We believe the key thing to do is to keep your 401(k) funds invested. If you take them out of the market, you may lock in losses and could miss out on opportunities for market rebounds.”
We expect 2024 to be a year of diverging trends for the dollar. It will likely move lower on a broad trade-weighted basis early in the year but stabilize as the year progresses. Although we expect a general downward drift for the dollar, performance of individual currencies will likely vary widely.
Good alternatives include traditional and Roth IRAs and health savings accounts (HSAs). A non-retirement investment account can offer higher earnings but your risk may be higher.
Living off a $1 million portfolio requires a strategic balance between securing steady income and managing investment risks. While some may find comfort in the lower returns yet higher security of Treasury bills, others might lean toward the potentially higher but more variable returns of index funds.
“If you invest your retirement directly into stocks instead of a retirement account, you will be subject to taxes on the dividends and capital gains when you sell the stocks. You also have the variability of stock price performance that may require you to sell at an inopportune time.
