The Risky Investment in your 401k that may be labeled Conservative
Investing in your 401k is a great way to save for retirement especially if your employer is matching your contribution. It’s free money that you would not otherwise receive if you don’t take advantage. Having the right strategy is an ongoing process that needs to be reviewed at least quarterly. The market is constantly changing and what may have seemed like a good investment a year ago may not be a good investment today. The one common mistake I have seen lately is having too much exposure to bond funds. The bond market has been a great investment for the last 30 years. Yields on the 30-year treasury have dropped from over 15 percent down to below 3 percent recently. This is great for the person who bought bonds in the past but today would be a wise time to rethink purchasing or even owning bonds that have a long duration. Bond prices move inversely to interest rates. As rates begin to rise, the price of bonds will fall and your bond fund will lose principal. Most 401k plans have the choice of owning various bond funds as part of the overall asset allocation. These plans also will rate funds from being conservative to aggressive. The aggressive funds are most likely going to be ones investing in equities or high yield securities. The Conservative ones will be the ones investing in US Treasury securities. These are labeled conservative because they are backed by the full faith and credit of the US Government. Be careful investing in long term bond funds of any kind in your 401k with interest rates this low. When rates go back to more normal levels the part of the market that will get hurt most is the long term treasury market. If you would like to learn more about this topic or have your portfolio reviewed please contact Fogel Capital Management, 772 223-9686. The opinion expressed in this article is that of the author’s and should not be considered advice for your individual portfolio without being reviewed by a financial advisor.