I want to move my aggressive 401k funds to a conservative Money Market within the same 401k program and hold for a year or so. I have less than 10 years till retirement and don't want to lose the way I lost in 08'. I will continue to contribute, also to the Money Market fund until the market adjusts. I keep reading that 2017 is in for some major corrections, to put it mildly.

Is this a bad idea?

  • You lost in 2008. Did you recover? If so, how long did it take?
    – JeffO
    Mar 15 '17 at 21:36
  • I lost half of my retirement savings from the crash and recovered most by 2012, in the black by 2014.
    – Jo415
    Mar 17 '17 at 3:17
  • I've heard you should plan on your cash needs at least 5 years into the future and get that portion out of anything risky. Based on your last experience, that money would have been safe but with no growth.
    – JeffO
    Mar 22 '17 at 14:40
  • Consider short-term bond funds in place of money market. Slightly better returns and practically no risk. Also, asset allocation is your friend. Just allocate differently, no need to put everything into cash.
    – Rocky
    Sep 11 '18 at 17:54
  • 1
    Message from the future: the market didn't crash in 2017.
    – Kevin
    Sep 11 '18 at 21:00

If you look at history, it shows that the more people predict corrections the less was the chance they came. That doesn't prove it stays so, though.

2017 is not any different than other years in the future:

  • the more risk you take, the more growth you get long term, but the more variation short term.
  • the more careful you are, the less variance you get short term, but also the less growth you get long term.

Independent of this, with less than ten years remaining until you need to draw from your money, it is a good idea to move away from high risk (and high gain); you will not have enough time to recover if it goes awry. There are different approaches, but you should slowly and continuously migrate your capital to less risky investments.
Pick some good days and move 10% or 20% each time to low-risk, so that towards the end of the remaining time 90 or 100% are low or zero risk investments.
Many investment banks and retirement funds offer dedicated funds for that, they are called 'Retirement 2020' or 'Retirement 2030'; they do exactly this 'slow and continuous moving over' for you; just pick the right one.

  • In early retirement; I will prefer 75% in low or zero risk. Rest 25% still in high risk high gain.
    – Aastik
    Sep 11 '18 at 16:31

I can understand your fears, and there is nothing wrong with taking action to protect yourself from them.

How much income do you need in retirement? For arguments sake, lets say you need to pull 36K per year from your 401K or 3K per month. Lets also assume that you current contribute (with any match) 1,000 per month. Please adjust to your actual numbers accordingly.

One option would be to pull out 48K right now and put it in a money market. With your contributions, I would then put half into the money market and half into more aggressive investments. In 10 years, you would have about 110K in your money market account. You could live off of that for three years. If the market does crash, this should give you plenty of time to recover.

Taking this option opens you to another risk, which is being beat up by inflation or lack of growth on a nice pile of cash. My time frame is not that different then yours (I am about 12 years away), but am still all in stocks. Having 48K and more with not opportunity for growth frightens me more than any temporary stock market crash.

Having said that I think it would be a horrible mistake to get completely out of stocks. Many of those destroyed in 2008 also missed 2012 through 2014 which were awesome years. So do some. Set aside a year or three of income in something nice and safe. Maybe one year of income in money market, one in bonds and preferred stocks, and one in blue chips.

  • as well described above, the important question is "what do you need" in the next 5 years. "Need" is the important word. Only put what you "need" in low-risk assets. Keep the rest invested in the market. As also stated above, even cash and bonds carries risk - inflation is coming, so I'd hate to have a lot of cash when it does.
    – rocketman
    Sep 12 '18 at 4:24

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