When people say they lost their 401k

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

Fleamo,

You have control by default. If you hire a financial advisor to manage your funds, you’re giving them control but you can tell them not to sell ever and they will do what you say.

jubilationtcornpone,

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.

Tar_alcaran,

“Buy low sell high” is a great slogan but a lousy investment strategy.

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.

capital,

Skate better

PlasmaDistortion,

Back in 2008 my retirement account was being managed by a friend that had recently become a “financial advisor” at Edward Jones. I was living outside the US for a few years and was completely unaware how bad the economy was. When I got back and checked in with him and discovered he had made horrible decisions and lost 90% of my money. In his brilliance he decided to sell all of the shares at the absolute bottom of the market and buy bonds with the leftovers. I essentially lost 10 years of my retirement savings because of my stupidity in trusting someone else with my money.

MajorHavoc,

So is there a way to prevent someone from selling your stocks if the economy tanks?

You can read the prospectus that comes with each of your investments. It will describe how it is managed pretty early in the text.

Almost any low fee index fund isn’t going to be active enough to lock in losses. To my knowledge, it hasn’t happened to any of the algorithm run ones. It could happen, but it’s quite unlikely, and it would likely result in immediate legal action requiring the algorithm owner to provide some remedy to those hurt. An index should rebalance, but should never exit the market.

And while a “target retirement age” fund could technically sell early and lock in losses, that would be an actual prosecutable crime. So as long as your provider isn’t running an outright scam, with a plan to flee from the law, you’ll be fine with a target retirement fund.

Kalkaline,
@Kalkaline@leminal.space avatar

Have you heard about Bob?

Custoslibera,

Work colleague crystallised their losses during the GFC by selling their 401k and changing the asset allocation to Cash.

They didn’t convert it back to stocks until 2018…

beirdobaggins,

Reading this hurt so bad, I almost downvoted.

walden,

I worked with a fellow once who said something to this effect right after the market went down during the pandemic. He said something like “I lost $50k yesterday”, and I asked him “oh really? Did you sell a bunch of stuff? If you still have it it’ll go back up eventually”.

He said “No I didn’t sell anything, but in 5 years everything is going to be lower than if the market hadn’t gone down”.

That take is also wrong. As you can see in this graph, things bounced back, and in general continued on the same trajectory.

https://sub.wetshaving.social/pictrs/image/76c34de1-a3be-4032-80b1-c6de50ea52ed.png

Just like there was a sharp decline, there was also a sharp increase. Without the decrease, the increase wouldn’t have happened, so the fellow I was working with was wrong, because his take would have meant the sharp increase would have happened even without the sharp decrease.

givesomefucks,

If it’s a “personal” one it does whatever you or the person you pay to manage it wants it to do.

A lot of it is by “shares” for company/government 401ks though.

Depending on the economy one share might be worth $20 or $200.

Some people in multi index funds will try to time it. When the market is bad they switch to the high risk index, knowing the fund rarely sells stock and wait for prices to go up. When their up and don’t think it will last, they put it in the safe but practically no interest indes.

Most people aren’t good at that.

“Lifecycle index’s” start high risk when you’re young, and slowly shift to low risk when you get close to your chosen age.

Because at 30 a crash on your 401k doesn’t matter, if anything it’s when you should max donations. But a recession the year you’re gonna retire means you keep working till your 401k.rebounds.

sugar_in_your_tea,

Most people aren’t good at that

Most professional investors aren’t either. Something like 70% of professionally managed funds fail to beat their index over a 10 year period, and the number goes down from there. And these aren’t idiots, they have a lot of education and professional experience, yet they still fail.

If timing the market worked consistently, everyone would do it. And if everyone did it, that means nobody times the market (stocks go up and down based on supply and demand, not some magic, hidden force). It’s highly unlikely that any individual will consistently win by trying to time the market.

yo_scottie_oh, (edited )

Target funds are passively managed, which means nobody is sitting there trying to buy the bottoms and sell the tops, which is what we call actively managed funds. Not having anyone to constantly babysit them is what makes passively managed funds less expensive than actively managed in terms of expense ratios.

Target funds tend to consist of other passively managed index funds that provide broad market coverage and whose objectives are none other than to mirror the performance of a wide range of securities in a particular asset class.

If your friend’s 401k suffered a 50% loss in 2008 and did not recover on the way back up, that means either your friend panic-sold, your friend was in a (very poorly) actively managed fund, or (most likely) your friend is full of shit.

Regardless, I would recommend not taking financial advice from your friend.

To answer your question, as long as you hold passively managed index funds, you do not have to worry about someone “selling your stocks if the economy tanks.”

sugar_in_your_tea,

It’s possible OP’s friend paid a crappy advisor to manage it and they messed it up.

satanmat,

In a 401k one generally does not have a choice in management.

You may have a choice in only a few funds…. So yeah if your holdings were sold then yeah that sucks and hurts. Hence I agree with the top comment IF YOU CAN index funds…

sugar_in_your_tea,

Usually a 401k will have two options: managed and self-directed. With managed, usually you pay some amount and the custodian selects investments. With self-directed, you pick the funds you invest in.

Usually there are passively managed funds in a 401k. Typically there’s a least an S&P 500 fund, a bond index fund, and often an international index fund. That’s all you need, and nobody is going to sell shares in those funds without your say-so. My 401k allows me to select a target ratio between each fund, so I can have whatever split I want, and I can choose to have it auto-rebalance (I think it costs something) or just contribute new money according to that ratio (free, that’s what I do).

Every 401k is a little different, but 401k custodians have certain fiduciary responsibilities, so they have to provide a reasonable selection of funds. Even actively managed funds can be fairly passive, so read up on the prospectus and find a lowish cost fund that targets an index, even if it’s actively managed.

originalucifer,
@originalucifer@moist.catsweat.com avatar

when i cared about this stuff awhile back, i remember you could specify when setting up the account how aggressive you wanted it managed. from zero (set it and forget it, long term stocks) to more risky funds that traded shit around constantly.

it all seemed like gambling to me so i handed it over to my spouse and promptly stopped caring.

lemmy_user_838586,

this is such a bad take. ‘Oh yeah… back when I cared about this stuff, I actually didn’t care, I stuck my head in the sand and passed off the obligation and responsibility to someone else.’

originalucifer,
@originalucifer@moist.catsweat.com avatar

my point was, i had a piece of information which i gave, and then i bowed out with what could be a temporally relevant time frame

but you read what you want to read, its cool.

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