One Industry Focus: Financials listener recently asked an interesting question about 401(k) rollovers: If you want to roll over your account, but the market has fallen rapidly, are you better off waiting for a rebound? In this clip, host Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss why this shouldn't be a concern.
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This video was recorded on June 3, 2019.
Jason Moser: Let's jump into the second question here from Joseph Higgins. Joseph says, "I switched jobs recently. In trying to roll over an old 401(k) from the time of request until I actually received the forms in the mail, my balance dropped 5%. Would you wait until the market rebounds? Or does it not matter since I'll be rebuying at lower prices anyway?"
Matt, as I said at the top of the show, you're a certified financial planner. You run across this type of thing, I think, often in your job. What do you think about Joe's question there?
Matt Frankel: I do. I'll say two points about it. The first one is, pay attention to the date that's on the forms you received. I'll tell you a quick story about a client of mine who called me in mid-February to tell me that he wanted to explore different options because he wasn't happy with his 401(k)'s performance. I asked him what he was looking at. And he said, "Well, I just got my year-end 2018 statement, and it looks terrible." And we know what happened in the market at the end of 2018. By the time he was actually reading his statement in mid-February, the market had gone back up like 15%. So, pay attention to the date on your statement. It doesn't necessarily reflect your current balance. If you want your current balance, try to log into your 401(k)'s portal, if you want to see how you're actually doing right now.
The second thing I would say is that if you're going to reinvest immediately, let's say you're going to roll it into your current employer's plan, don't worry too much about how much your balance went up or down. You'll be immediately reinvesting. If your current 401(k) dropped by 5%, the new 401(k) probably dropped by the similar amount and it's a wash. Now, if you're going to be doing some delayed reinvestment, like you're rolling it into an IRA and then you're going to wait and figure out what stocks you want to buy, what funds you want to buy -- if it's a delayed reinvestment, then it's a little bit of a different story. But the majority of 401(k) rollovers are pretty immediate. You roll it over and you buy a few mutual funds pretty immediately, or if you roll it into your new employer's plan, it immediately gets reinvested. Unless you have some unusual case where you're going to research and buy individual stocks, I wouldn't put too much emphasis into what your plan has done recently.
Moser: I'm glad you mentioned that, because I was going to offer a quick personal experience of mine. I've had a couple of rollovers where I rolled the retirement plan over into an IRA that I have. Ultimately what I did is, I was rolling that money into an IRA where I was thinking of buying individual stocks. I basically was taking on my own little portfolio management role there. I was going to steer away from the funds and more toward the individual stocks. I didn't consider even for a second the timing of the matter. Honestly, the main reason is, when you look at the overall length of time that I intend for this thing to be in action, for me, it really didn't matter. When it boils down to it, a couple of days here and there, whether it's underperforming or performing well, up or down for whatever given week or month...you can sit there and fight that battle all day, every day. Ultimately, you have to pull the trigger. He made the point, maybe you're going to be buying back in at some lower prices anyway. I think that's a good way to look at it. But I think if you're looking at this generally, and thinking about how long of a timeline you've got -- hopefully in this case, we're talking about decades -- that makes it a lot easier to go ahead and pull the trigger, get that thing transferred over. Either way, generally speaking, you have to do it at some point, so don't nitpick too terribly much on the day-to-day machinations of the stock market. We know that pretty much never stops, especially in this environment.
Joe, I hope that's helpful. Good question! Certainly, I don't think there's any one cut-and-dry answer there. But hopefully, we've given you a couple of extra things to think about, ways to look at it.