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The stable value fund option in 401k offers capital preservation with some benefit like fixed income. The market is very volatile. Is it good idea to put all 401k to stable value?

My 401k completely recovered from March dip. I need to decide if I should put it in stable value now considering unknown prospect of US economy in coming months.

If market drops a lot, should it be beneficial to put money back from stable value fund to market ?

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  • Do you care about the following months or the following years? – glglgl Jul 16 '20 at 10:58
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    If you think the market will drop, you should take your money out. If you think it will go up, you should put your money back in. It doesn't matter what happened in the past; that's water under the bridge. But note that people who think the market will drop are usually wrong, so the normal advice is that it's better to just leave your money in all the time, even during drops, so that you don't miss out on the times when the market goes up. – user253751 Jul 16 '20 at 16:31
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    How close to retirement are you? Needing to withdraw from your 401k for daily expenses is much different than having several decades to go before you can touch the money without penalty. – jamesqf Jul 17 '20 at 1:05
  • I am 40 years old. I got the point you are are making. – Snake Jul 21 '20 at 16:46
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Is it good idea to put all 401k to stable value?

This is a matter of opinion, but in general I would say no. What you are talking about is called market timing, and it is well established that most people are terrible at it, even among those whose job it is to predict what the market is going to do.

If market drops a lot, should it be beneficial to put money back from stable value fund to market ?

Nobody knows. All you can say for sure is if the market has dropped, it is a better time to put your money in than before the drop. But it could still drop further.

I would advise you to pick an asset allocation you feel comfortable with and stick with it, rebalancing annually. Keep contributing to your 401(k) no matter what, and ignore the short-term fluctuations.

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Is it good idea to put all 401k to stable value?

How to allocate investments across the different investment sectors is an individual decision.

The question "is this a good idea" depends on your age, how soon you need the money, and how much of your total investments this constitutes. The money in my current employers 401(k) is a minor amount of my total investments. That is because I have been investing in 401(k)'s and IRAs for 30+ years, but only with this employer for 5 years. But 30 years ago the only investments I had were in my 401(k).

So If I had been asking 30 years ago, the question I would have been asking is "should I move all my investments into a stable fund?", but now it would be "should I move 5% of my investments into a more stable fund?" The answer to is this a good idea would be different.

If this was money in an Education 529 plan, and their child was in high school, I can see somebody wanting to become ultra-conservative with that investment. But then again many people have 529 money in a fund that autmaticly becomes more conservative as the child gets older.

If market drops a lot, should it be beneficial to put money back from stable value fund to market ?

Now you are looking to time the market. You are guessing that the near term will be bleak, but next year you can guess the bottom, and get back into the market. That is tough to do. You might sell at the wrong time, and you might buy at the wrong time. You are trying to guess correctly both times.

There is one positive thing about your plan. Because this is 401(k) money if do this there are no capital gain taxes to be concerned about. This would also be true inside a Roth IRA or a traditional IRA. That is because all these retirement accounts defer taxes or even are tax free.

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