I’ve had a few people in my life tell me that they lost X % of their 401k during the (insert financial crisis).
Recently when a friend told me they lost 50% of their 401k in the 2008 time, I said: “Well you didn’t really lose anything, because you still had the stocks, and even though they were worth less, you still had the same number of stocks, so you could have waited it out?”
To which my friend replied: “That would be true if the person managing my 401k didn’t sell”.
I hadn’t actually thought about that. I mean personally most of my funds are in age based target funds, but those funds are also managed by someone, right? So is there a way to prevent someone from selling your stocks if the economy tanks? I have a pretty long retirement horizon (still in my 30s) so I can weather the storm for a bit.
Edit: Thank you everyone for the insightful answers. This really helps to clear things up
It depends on who is managing your money and what their investment strategy is. So many people, including “experienced money managers”, treat the stock market like it’s a blackjack table. Trying to capitalize on the rise and fall of stock prices which are often driven by investor enthusiasm; or lack thereof. They’re like dust in the wind.
“Buy low sell high” is a great slogan but a lousy investment strategy. Investments are a long game. When you, or whoever is managing your 401k, buys stocks they’re using your money to buy ownership in a business. Diversification, not having all your investments in one stock or even one industry matters. Long term viability of the businesses you invest in matters. Investing in good, sustainable business that are not overvalued (meaning the stock price exceeds the book value) matters.
You want someone managing your money who does their research, understands what they’re investing your money in, and knows that when stock prices go down, it’s the best time to pick up more good investments at a discount. Not to panic and sell everything. That’s almost always a losing strategy.
That said, Lots of 401k’s are invested in index funds which have a detailed investment strategy that the broker handling your 401k should be able to provide you with a copy of.
It’s an amazing investment strategy in the same way that “just run faster” is an excellent way to win a marathon.
They’re both true, and both completely useless.