What do I do with my old 401k or IRA?
Over the past 10 years, private companies have shifted the market risk to their employees. It is now very uncommon for a new employee at a private company to be offered a pension plan. In most cases, pension benefits have been cut or terminated. Now that the majority of savings are inside of IRA’s or 401k retirement plans, the question that many people are asking is how do I manage this money? The answer to this question is a personal one. Each individual has different goals, risk tolerances, time horizons, tax status, and values. They also have different market expectations, knowledge, and experiences.
My tip for investing your old 401k or IRA is to first create market assumptions and second, create your own investment philosophy. You need to start with these two key investment assumptions – what is the expected inflation rate and market return. Vanguard founder Jack Bogle believes that stock returns will be as low as 4% before inflation over the next decade. If you believe these predictions, your old 401k or IRA is not going rise as fast as the historical average rate of 8%-9%. Having expectations will help you select the most appropriate investment strategy and asset allocation.
The next step to answering this question, is creating an investment philosophy. If you don’t have a philosophy, I highly recommend you either find an advisor who makes you feel comfortable, or start reading some investment books written by Jack Bogle or other legendary investors. Similar to ideologies and political beliefs, many investors feel strongly one way or another about investing.
I believe that the secret ingredient to investment success is having an investment philosophy. An investment philosophy is a set of core beliefs that is applied to how one invests and thinks about markets. My investment philosophy has been born from my own personal experiences and what I have learned from very successful investors. My core beliefs start with what not to do. Below is my philosophy for investing my clients’ wealth.
- Do not invest in a company without a recurring positive free cash flow.
- Do not invest in something you don’t understand.
- Do not invest in complex mutual funds and ETFs.
- Do not invest if you don’t understand downside risk.
- Do not invest if there is no possibility for a future income/dividends.
- Do not invest if you don’t understand the costs.
- Do not invest if you are promised abnormal returns.
- Do not invest in individual international and emerging market companies.
- Do not invest in a new company that sells only one product.
- Do not invest in to concentrated positions.
A well-defined investment philosophy could help you become a less emotional investor and give you more control in volatile markets. There is no way to predict what the market will do tomorrow, but you may become more prepared to take advantage of new investment opportunities. If you prefer to work with a financial advisor, be sure that they follow similar core beliefs that align to your own convictions.
If you would like to speak with me about building a diversified portfolio through customized portfolio management that aligns your risk tolerance with your financial goals, feel free to send an email to mitch@cgfadvisor.com.
Please read our disclosure statement regarding the contents of this post and our website as a whole.
Advisory services offered through Constant Guidance Financial LLC, a registered investment adviser.
