I’ve had a few people in my life tell me that they lost X % of their 401k during the (insert financial crisis).

Recently when a friend told me they lost 50% of their 401k in the 2008 time, I said: “Well you didn’t really lose anything, because you still had the stocks, and even though they were worth less, you still had the same number of stocks, so you could have waited it out?”

To which my friend replied: “That would be true if the person managing my 401k didn’t sell”.

I hadn’t actually thought about that. I mean personally most of my funds are in age based target funds, but those funds are also managed by someone, right? So is there a way to prevent someone from selling your stocks if the economy tanks? I have a pretty long retirement horizon (still in my 30s) so I can weather the storm for a bit.

Edit: Thank you everyone for the insightful answers. This really helps to clear things up

  • MajorHavocEnglish
    4·
    9 months ago

    So is there a way to prevent someone from selling your stocks if the economy tanks?

    You can read the prospectus that comes with each of your investments. It will describe how it is managed pretty early in the text.

    Almost any low fee index fund isn’t going to be active enough to lock in losses. To my knowledge, it hasn’t happened to any of the algorithm run ones. It could happen, but it’s quite unlikely, and it would likely result in immediate legal action requiring the algorithm owner to provide some remedy to those hurt. An index should rebalance, but should never exit the market.

    And while a “target retirement age” fund could technically sell early and lock in losses, that would be an actual prosecutable crime. So as long as your provider isn’t running an outright scam, with a plan to flee from the law, you’ll be fine with a target retirement fund.