Is my 401k safe? I’ve heard this question a thousand times that past few days and I actually didn’t know the answer and had to check around and make a few phone calls.  I tell you this has been a truly historic time in our countries financial markets and I and no one else knows where we are headed.  So this question I take in two different ways.

ONE: What will happen to my 401k account if I had it in Lehman Brother;s or AIG or Merrill Lynch retirement plan?  Is my 401k insured with a fidelity bond to protect it from the Investment firms going bankrupt?  Can I move my assets now after the fact? Is my 401k safe?

TWO: Should I still be investing my 401k account in mutual funds or stocks?

I’ll answer the second question first.  NEITHER!

As you may have noticed your 401k or any managed retirement portfolio has significantly decreased in value over the course of the year but especially over the past few weeks.  The talking heads on television always tell you that this is only a correction or blame it on something or another.  They always act like they know exactly why the whole market went down, like APPLE is being investigated and that caused the whole tech sector to decrease in value.  Do you actually believe that?  I hope not.

Anyway, what I was saying was that we are told that this is only a correction, and really most of the time that is true.  But it isn’t true now.  Why do you say?  Well let me tell you a little secret that I read about and have used to my advantage.  But first lets talk about moving your assets out of stocks and into cash.  I know that sounds funny, but cash is a position.  No broker or fund manager will agree with that as he can’t make money unless your account is invested in stocks or mutual funds.  But cash is king in today’s world.  We don’t know what the bottom will be in this market and you don’t want to guess that the turnaround is just around the corner.  You have lost 20%, 30% or 40% of your investment possibly, do you want to take a chance on losing even more.

As you probably know or should know if you have studied the stock market at all the stock market has had a major correction over any 10 year period.  Some of those “corrections” have wiped investors out. Most I admit haven’t and the market has come back stronger than before, but look at our situation right now.  The current administration over the past 8 years and our current economic problems are similar to a far away time that most people thought couldn’t ever happen again.  Have you ever read about the 1929 “correction” that took 25 years to come back. Do you have that long?

How do you know when to sell? Most brokers and financial planners won’t tell you for obvious reasons and most of them don’t know.  But it is up to you to protect your money so I’m going to let you in on my secret I mentioned earlier.

Their is an excellent indicator that is published every day in the newspaper Investors Business Daily. You don’t have to buy the paper.  You can look at it in the local library.  In the second section you will find a chart called the Investors Business Daily Mutual Fund Index. The chart shows an index of 24 major mutual funds. There is a dotted line called the 200-day mutual fund average. For the last 5 years this line has been rising.   It started it’s rise in April of 2003 to give a BUY signal. It has recently turned down. That is the SELL signal for the entire stock market.  To get this information online you have to subscribe to Investor’s Business Daily, so just go to your local library.

Smart investors that want to protect their investments should instruct their fund managers to sell everything and put it in a money market account.  It won’t be making a lot of interest, but at least your money will not disappear at the rate of 20, 30, 40% or more as it did in 2000.  You should than wait for that moving average line to turn back up before buying back in.

All 401Ks are in danger of losing more money now.  Protect yourself and be a prudent investor and protect your money.  Sell now.

Now on to the First question.  I was going to write a long article on this topic alone but I found out that this is an extremely complicated topic.  I have found one already written that does an excellent job of answering all of your questions, but it does cost money.  I’m not making a dime on this but it is really a good investment for the amount of information that it has.  Get a few of your co-workers to go in on it and it won’t cost hardly anything. You will be amazed at how little your 401k is protected.

Click Here to Answer the First Question