I alluded to my 401K in my initial post. Actually, it was my second 401K. My first one, I cashed out for some emergency funds back in the early 2000s. I didn’t start my last one until way later than I should have. I’m not going to go into the pros and cons of 401Ks just yet. Let me lead with happened to me.
I started mine around 2012. My particular employer did profit sharing to the 401K, which was very nice. Unfortunately, somewhere around 2015, when the market dropped, so did the 401K. I wasn’t happy, but there wasn’t much I could do. Likewise, shortly after I got laid off in 2020, the market tanked, and so did the 401K, which I’d left with the financial company that administered it. I won’t mention which firm, because I don’t think it really matters. Ever seen the reminder that financial managers make money whether you gain or lose?
Along the way, my mother passed away, and I inherited an IRA from her, and the financial company that ran that one didn’t take much better care of it.
Still, overall, it had grown, so I left it with the “people who knew what they were doing.” I’m glad I did, at that point, because as you saw from my Roth post, I didn’t know what I was doing.
What I learned, over the course of 2021, and 2022, I learned a rather disturbing truth.
When it comes to investing, when I hear the word “Conservative”, one of the thoughts that comes to mind is that if the market starts to crash, you pull your money out of the market. The phrase I’ve seen used is “go to cash”.
Apparently, when you go to the website where 401K/IRA is being administered, and they have you select your risk tolerance, and you tell them you want to them to be conservative, it means something totally different to financial management types. Go figure.
Now, I’m not a college graduate. But when the market begins to crash, I realize that if I leave my money in the market, the value of my account is going to go down. I’m going to sell, and go to cash until the market figures out what it’s doing. Of course, that’s not what happened. My account dropped like a rock. Now, to be fair, a big investment firm can’t react like a small trader can. If they dumped all of the accounts they managed to cash, the effects on the market would probably worse than I can even imagine. So, objectively, I sort of get it.
That said, whatever the reason, these people weren’t doing what I felt like I was paying them for: safeguard my retirement account. So, in December of 2022, I started transfers of my 401K and the inherited IRA to accounts on Ally Bank.
One of the quirks of an inherited IRA is that you have mandatory distributions within 10 years. That being the case, and money being tight, I decided to close the inherited IRA, pay the taxes on it, and use it for my 2022 and 2023 contributions to my Roth. The rest went into a money market account, earning interest.
My 401K split into two accounts, one an IRA savings account, the other an investment account. At the time I transferred over to Fidelity, the IRA savings was earning 4.2%. That was part of my decision to switch to Fidelity. I like Ally, but the interest rates on their savings accounts were good, not great, and I could do better on CDs through Fidelity. Their investment platform was kinda meh, as well. Still, between the beginning of 2023 and August of 2024, I managed to grow what was formerly my 401K by 8%. Not fantastic, but it grew.
So, here I stand, all consolidated in Fidelity, ready to roll. I’ll pick it up there next time!