Dating 401(k) Safety

Well, it has been a year since I last wrote here and you know what? My message hasn't changed.

Seek safety NOW. Your 401(k) is at great risk if your savings are invested in the stock market. I can only say this louder following the shock of May 6, 2010.

The lesson of that day's late-afternoon collapse is, in fact, frightful. There is a very real possibility that, sometime over months ahead we could witness a period where the stock market becomes more or less dysfunctional for days on end.

Why? Well, why does "why" matter when all the reason for fearing the worst has been vividly revealed? If complete dislocation can happen for an hour (as occurred on May 6, 2010) it can happen for a week or longer.

The real risk here, particularly if you are inclined to doubt, is that as this warning begins to bear out, you finally decide to switch your 401(k) investments out of stock funds and into a safe money-market fund ... only to discover you cannot get out because, as there simply are not enough interested buyers operating in the stock market, your 401(k) plan manager is forced to halt redemptions.

Listen up! At the epicenter of what happened on May 6, 2010 were companies millions of investors own: Proctor & Gamble and 3M. Buying interest in these giants simply evaporated.

Had this happened to, say, Build-A-Bear then maybe my warning could be considered extreme. However, Proctor & Gamble and 3M both are companies that have been in business for many decades! They're not about to disappear — not by a long-shot.

Truth is if it happened once, it can happen again, and on an even broader scale. May 6, 2010 delivered fair warning, loud and clear. A more prolonged dislocation in the stock market will badly affect any 401(k) invested in stocks when it clearly is the wrong time to be taking such risk. Act now and you will prevent this.

Now, if the stock market's advance over the past year since I last wrote here has you thinking I am some clueless, nervous Nelly, may I interest you in a trip down memory lane? The lesson of that experience ten years ago is a gold mine to the 401(k) investor who understands the difference between the "long-term" and one's lifetime.