Why I cannot find a "Pure Cash" option in 401k investments?
Why I cannot find a "Pure Cash" option in 401k investments?
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Saurabh Patil · External communityPost link
External question — Personal Finance Stack Exchange
Author: Saurabh Patil
Original post: https://money.stackexchange.com/questions/44703
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I am of an opinion that I should decide where my money should get invested and if it should get invested at all or not.
When I looked at the investment options I have with my 401k money, I figured out that there are many Mutual Funds that I can choose from. But I couldn't find a "Pure Cash - No investment option" - what I mean by this is an option where my money is kept idle without investing in any kind of financial instrument (stocks, bonds, other MFs, currencies, forex etc etc whatever).
I wanted such kinda option because things may turn bad and I may want nothing invested in the stock markets/bond markets. I was thinking that if the market turns bearish then I would move everything to cash, but the cash option that is provided is not pure cash, it's again a fund basically which they call it as SF guaranteed. I dived in and investigated where this fund invests. Its portfolio consists of public bonds and mortgage loans and many other things. It means my money isn't getting invested as I want. There is no zero risk option! They have clearly mentioned that it has investment risk and it's not backed by any Federal fund. It's backed by the assets of the company that manages my 401k investments, duh! It's a private company. And who cares about that. I don't want any backing, I just want to keep my money in pure cash. Shouldn't I have an option to put my money into pure cash?
And if they aren't providing my an option why aren't they? What's their motive behind this?
What to do in such a scenario? My only point is I should decide where my hard earned money is invested. By giving all the options which in the end are investing in stocks/bonds/mortgage securities etc they are essentially telling me that all my 401k investment is subject to market risks! That's bad. There is no safe parking zone for turbulent times!
Any thoughts/advice would be greatly appreciated.
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James J Taylor · External communityPost link
External answer — Personal Finance Stack Exchange
Author: James J Taylor
Original post: https://money.stackexchange.com/a/73338
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My 401k allows cash holdings to 100% if desired. I'm not sure why some won't, they are making money on your money after all. If you are looking to the funds vehicles for investing suggestions however, they will never allow cash. I found you must go into "Invest on my own" vehicle to make that change.
I have beaten and timed this market several times by sitting with cash on the sidelines. The only time I missed it was when I talked to a fund administrator in 2008 dot com crash and stayed in at this suggestion. I told him I didn't see where the market could go much higher as I had made 12-28% on some funds. He was dead wrong of course and I lost 50% that year.
Now, trust me, in 2017, assets are grossly overvalued. If they won't let you deposit to cash, don't invest and just save your money until the next crash.
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grfrazee · External communityPost link
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Author: grfrazee
Original post: https://money.stackexchange.com/a/73405
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There is no zero risk option!
There is no safe parking zone for turbulent times!
There is no such thing as a zero-risk investment.
You would do well to get this out of your head now. Cash, though it will retain its principle over time, will always be subject to inflation risk (assuming a positive-inflation environment which, historically in the US anyway, has always been the case since the Great Depression).
But I couldn't find a "Pure Cash - No investment option" - what I mean by this is an option where my money is kept idle without investing in any kind of financial instrument (stocks, bonds, other MFs, currencies, forex etc etc whatever).
Getting back to the real crux of your question, several other answers have already highlighted that you're looking for a money market fund. These will likely be as close to cash as you will get in a retirement account for the reasons listed in
@KentA's answer
.
Investing in short-term notes would also be another relatively low-risk alternative to a money market fund. Again, this is
low-risk
, not
no-risk
.
I wanted such kinda option because things may turn bad and I may want nothing invested in the stock markets/bond markets. I was thinking that if the market turns bear then I would move everything to cash
Unless you have a the innate ability to perfectly time the market, you are better off keeping your investments where they are and riding out the bear market. Cash does not generate dividends - most funds in a retirement account do. Sure, you may have a paper loss of principle in a bear market, but this will go away once the market turns bull again. Assuming you have a fairly long time before you retire, this should not concern you in the slightest.
Again, I want to stress that
market timing does not work
. Even the professionals, who get paid the big bucks to do this, on average, get it right as often as they get it wrong. If you had this ability, you would not be asking financial questions on Stack Exchange, I can tell you that.
I would recommend you read
The Four Pillars of Investing
, by William Bernstein. He has a very no-nonsense approach to investing and retirement that would serve you (or anybody) well in turbulent financial markets. His discussion on risk is especially applicable to your situation.
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Quoted from Forex.com.bd-Editorial External answer — Personal Finance Stack Exchange Author: grfrazee Source score (net votes, not local likes): 1 Original post: https://money.stackexchange.com/a/73405 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. There is no zero risk option! There is no safe parking zone for turbulent times! There is no such thing as a zero-risk investment. You would do well to get this out of your head now. Cash, though it will retain its principle over time, will always be subject to inflation risk (assuming a positive-inflation environment which, historically in the US anyway, has always been the case since the Great Depression). But I couldn't find a "Pure Cash - No investment option" - what I mean by this is an option where my money is kept idle without investing in any kind of financial instrument (stocks, bonds, other MFs, currencies, forex etc etc whatever). Getting back to the real crux of your question, several other answers have already highlighted that you're looking for a money market fund. These will likely be as close to cash as you will get in a retirement account for the reasons listed in @KentA's answer . Investing in short-term notes would also be another relatively low-risk alternative to a money market fund. Again, this is low-risk , not no-risk . I wanted such kinda option because things may turn bad and I may want nothing invested in the stock markets/bond markets. I was thinking that if the market turns bear then I would move everything to cash Unless you have a the innate ability to perfectly time the market, you are better off keeping your investments where they are and riding out the bear market. Cash does not generate dividends - most funds in a retirement account do. Sure, you may have a paper loss of principle in a bear market, but this will go away once the market turns bull again. Assuming you have a fairly long time before you retire, this should not concern you in the slightest. Again, I want to stress that market timing does not work . Even the professionals, who get paid the big bucks to do this, on average, get it right as often as they get it wrong. If you had this ability, you would not be asking financial questions on Stack Exchange, I can tell you that. I would recommend you read The Four Pillars of Investing , by William Bernstein. He has a very no-nonsense approach to investing and retirement that would serve you (or anybody) well in turbulent financial markets. His discussion on risk is especially applicable to your situation.
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