How's business been for you Gad? Perhaps you're smart enough to be one of the few to see good returns in this economy. I should have gotten out a long time ago. What a disaster and a waste $401k has become. It's the 21st century's version of the social security scam. They lure you in with a tax break and then cut you off at the knees with inflation.
Why would inflation hurt your 401k? If companies are beating expected earnings, then stock prices are going up. Rising prices follow a hot economy. But you don't like inflation. Okay, well, the traditional cure for that, as Trump appointed right-wing chairman of the Federal Reserve Jerome Powell will tell you, is to raise interest rates. Rising interest rates are what's killing the stock market. You can watch this is real time. Watch Jerome Powell open his mouth and watch the stock market go down. (it doesn't matter what political party the Fed chairmen is, the result is the same. I just point out the person causing the pain right now is a Trump appointee because Republicans don't seem to know this and just shout "Biden".)
When the Fed promotes higher interest rates then stocks get dumped for less risky assets; a lot of things are going on, but Imagine an extreme example: what if you could get 60% on your savings account? You'd hoard every cent. Nobody would want to spend. If everybody stops spending, then companies aren't selling and they aren't making money. If they aren't making money, employees get laid off. But something magical happens as a result of all of this: prices fall. That's right, Ajax, let me put it another way: Trump Appointee Jerome Powell is trying to make saving so attractive that it stops companies from making money and people lose their jobs, because
that's the proven way to make prices fall and stop inflation.
If you have the least bit of curiosity about the world, you might ask yourself what Jerome Powell was doing during Trump's presidency, when Trump was king of the stock market? That's right, right-winger Jerome Powell was lowering interest rates like crazy. Take another extreme example: what if your bank account paid - 60%? You'd spend like there is no tomorrow. Lowering interest rates makes spending more attractive. That's the intuition. Jerome Powell lowered interest rates to nearly zero! What do you do once you can't lower them any farther? I'll tell you, once you get near zero, stocks start crashing because they anticipate the juice being turned off in the near future. Your 401k doing great up until rates hit about zero had less to do with a great economy and more to do with Powell. If Powell didn't drop rates to near zero, he wouldn't have to clean up the mess by backing them up to 4 or 5 or 6 in a short time span.
Don't stop putting money into your 401k now; don't be like my right-wing friend and buy high and sell low.
Sure, everyone wishes they sold at the top. But remember, trading is a zero-sum game. If everybody sold at the top then everyone would instantly be at the bottom. The only way you could have sold at the top and then bought the bottom, is at the expense of other market participants. Brilliant hedge funds managers with big degrees and high-tech software analyzing the crap out of the market are playing a zero-sum game against other brilliant hedge fund managers with the same software. That means, be careful about trying to time the market, dollar cost averaging and diversifying is still the best way to go.
My personal trading account is doing much better than my 401k or the market, but while in the black this year, is not great. If I can slowly improve it, I'll do more on my own and put less in my 401k, but I would never just pull my 401k or sell my house at the top and rent, hoping the market will crash. That's risky stuff.
Social distancing has likely already begun to flatten the curve...Continue to research good antivirals and vaccine candidates. Make everyone wear masks. -- J.D. Vance
