Timing 401(k) Safety ~ The Risk Averse Alert

Saturday, August 15, 2009

Timing 401(k) Safety

Back in January 2000 I drafted a report detailing why I believed the first few years of the 21st century would be rough ones in the stock market. This went out to my close associates.

At the time the NASDAQ Composite traded near 4000.

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Appreciate what a bold forecast this seemed to the average Joe and Jane!

Yet following an unprecedented five years straight of 20+% annual gains ... and echoes of 1929 ringing ... with the "new era" in technological progress sounding just like the "new era" of endless industrial prosperity ... and the king of analytical tools — the Elliott Wave Principle — raising cause to believe levels last seen in October 1998 likely would be revisited during the opening years of the 21st century ... my bearish call, in fact, simply was prudently risk averse.

So, let me show you why, when it comes to your 401(k), timing is not everything...

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Two months into Y2k unswervingly bearish me is staring at NASDAQ another 20% higher ... unconcerned for my position (much like right now).

So, in January 2000 I switched my 401(k) out of stocks too early. Having likewise advised others to do the same, you might imagine some were thinking from the greedy side of their brain and lamenting my recommendation that they, too, switch 401(k) investments out of the stock market and into a safe money market alternative their plan offers.

Yet what two words appear beneath "The Risk Averse Alert" in this blog's banner? They're not there for just theoretical or principled reasons! Their wisdom has been demonstrated...

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That's right ... "Patience Pays."

So, because the stock market right now is no place for a long-term investor (which, in fact, your 401(k) makes you), your comfort in the safety of a money market fund deserves supremacy in the face of what substantially has been a giant short squeeze since March '09 bottom. The market's advance since March bottom is not the start of a "new bull market" in stocks. My case for arguing this view has been made over many recent days during recent weeks and months.

Once again, then, I have taken to safety well before the ultimate top in the stock market.

Once again, though, I remain unswervingly bearish and undaunted by any view claiming the status quo of the past thirty years — a period of rising stock prices — has been restored by unprecedented intervention bringing momentary stability in the financial system (as has been claimed by many observers).

Let me put my bearish conviction in "mainstream" terms you might better understand...

If the U.S. economy is 70% consumer-driven, what is the likelihood businesses serving American consumers will experience increasing revenues when taxes are likely to rise? (This would be out of need to offer U.S. Treasury debt buyers physical backing insuring the viability of their investment in Uncle Sam.)

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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

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