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 The Strategic Fund Switcher

Frequently Asked Questions

Who is this resource intended for?

    The average investor (401K participant) who doesn’t understand the world of investing.  They have access to and are using the means to become wealthy.  They just don’t recognize how powerful it can be.

Why is this site different from the other financial investment sites?

    In a word, simplicity.  Investing is about information and using it in a timely, effective manor.  We make it easy, fun, more interesting and rewarding for you to pay a little attention to your investments.  There is no need for ongoing study.  There are no analytical tools for you to learn.

Why should I use this resource?

    To achieve financial independence.  You are the only person who is going to look out for your interests.  You have the means (your 401K).  You just need a little guidance and a little effort to maximize your investments.

How can I make my 401K grow faster?

    Get more involved with your investments.  Take a few minutes each week to read a simplified, brief report on trends affecting your 401K investments and what changes you can make to avoid risk or profit from opportunities.

How does it work?

    1)   You will check the Stock Market Risk Factor Scale and where the Arrow is.

    2)   When the Arrow is approaching the red zones on either end, this is your indicator to  help you understand when a change to your portfolio might be prudent.

     Just below the Stock Market Risk Factor Scale are the two indices and their ranges.

    3)   Monitor the market to see if the indices influence the Arrow further into the Red  Zone.  If so,

    4)   Log on to your 401k account and make a Fund Switch.

    For details on market factors and how I expect them to impact the markets, check the blog  Managing Your 401k for Better Results.   You will see how accurate my expectations have been and you will understand why the risk level is where it is at.

How can I avoid the big drops in the stock market?

    By being aware of the risks that can cause them, if they are growing, and deciding when to reduce your exposure to them.  This can only be done if you are proactive. 

Why doesn’t my 401K plan tell me how to avoid losses?

    That isn’t their job.  They are not allowed to make any specific recommendations on how you invest your money.  They can only explain how the plan works, what is available, and how to diversify your investments.

Why do I need to learn the Basic Concepts?

    To make intelligent, informed decisions.  Knowledge is power.  Become more powerful.  Once you learn them you will begin to understand so much more and you will rely much less on others for your long term financial success.

Why does the market fluctuate so much?

    People’s perception of risk and opportunity changes on a day to day basis.  New information and data is learned constantly.  By understanding developing trends and new events, analysts can make projections on how they might affect the markets.  Investors then react to those projections resulting in market changes.  The more extraordinary the trends and events, the more volatility occurs.  In addition, there are times when investors overreact due to a lack of information which increases investor fears.  Extraordinary opportunities then become available for the smart investor. 

How do you know when the market has peaked or bottomed?

    You won’t until months later.  Fund switches are made only when you decide that risks are greater than you are comfortable with or have diminished such that the upside far outweighs risk.  A very important concept is this; you will never get out at the top and you will never get in at the bottom. 

What is Fund Switching?

    The movement of money from one mutual fund to another to reduce risk or improve investment returns. Studies have shown that individual investors most often lower their investment returns when switching funds.  This is usually a result of reacting in hindsight by chasing the latest best fund or running from market losses already incurred.  It is also an abuse of the strategy.   Fund switching should only be done by someone who understands how to do it or with guidance from someone.  It should be done in foresight of trends and developments.  You are only trying to avoid a portion of the market declines and trying to capture most of the market increases.  One well known market axiom is “Avoid Losses“.

How do I make fund switches in my 401K?

    You just logon to your plan via the internet, select the action to take, and enter the desired change. Most 401k’s are online now.  You should have a user I.D. and password.  Each plan has their own system and most are user friendly.  You can specify any percentage allocation to any fund.  But, there are two parts to your fund plan;  Contributions, and Allocations.  For simplicity, you can specify all Current Contributions into a single fund.  Then, when you make fund switches they will be picked up with the change.   You want to know which funds fall into which category; stock, bond, balanced and money market fund.  Learning the Basic Concepts helps to understand the categories.

What do I do about my Asset Allocation?

    Fund switching is an active management strategy.  Asset Allocation is a passive management strategy and is intended to include your total portfolio.   Both have risk reduction as an objective.  You can do both at the same time.  The amount and where you switch funds to is up to you.  As you gain more confidence in what you are doing, you will find that you rely less on passive management.

 

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