But, if (and that’s a big if) you were able to time the market relatively well to know there was going to be a downturn, you could loan the money to yourself.  Because the money would not be in the account, it wouldn’t suffer from the loss of value in your investments.  And instead, you’d gain whatever the interest rate was that you loaned the money for.  Instead of a double digit loss, you could have a relatively decent gain.  In theory it could work.

In theory.  The catch here is that you would have to time the market correctly.  If you missed it by a day, you could cost yourself some money.  If you were totally wrong and the market rallied, you’d end up missing out on possible gains.  But, if it worked, it could work out pretty well.  In the end, the more I look at it, it’s really a form of gambling.  You’re gambling that you can time the market and save your money.

Gambling is never a safe bet when it comes to your retirement.  It’s always tempting though.  It’s important to remember that a fall like we had over the last few years almost always comes back up.  You haven’t really lost money so much as lost value.  There’s a big difference there.  And if you keep contributing, which you should, you’re buying the very same investments at a bargain price.  So, instead of trying to minimize your losses by pulling your money out, you should be increasing your investment to maximize your return when the account finally bounces back up.

401(k) Loans as Recession Insurance? is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

Did it get misplaced?

I’m being a bit facetious here to prove a point.  To lose money implies that the money is no longer yours.  Except that the majority of your “money” in a 401(k) isn’t actually money.  It’s shares of companies or mutual funds or index funds or ETFs.  You aren’t losing money.  You’re losing value.  The securities that you purchased with your money are not as valuable as they were when you bought them.  You still own the same amount of securites, which you converted your money to, so you still have all of your money.  It’s the value that you’ve lost.

Better example.  You buy a car for $10,000.  After driving the car for 5 years, you sell it for $5000.  Did you lose $5000 on the car?  Not really.  Very few people will think of it that way.  Because most people do not assume that they will gain value in a car, so they accept that they will not be able to sell the car for the same amount they bought it for.  And it is almost guaranteed that it won’t gain any value.  Again, though, you lost value, not money.

Losing value isn’t as bad as losing money. Why? Because, unless you need to realize that value immediately, you have time to wait and see if the value does go up.  And with securities, chances are that they will.  And in a locked up instrument like a 401(k) with all it’s penalties to discourage realizing that value until retirement, many of us have decades to wait and see how things turn out.  And, if I were a betting man (which I am sometimes), I would put pretty good odds on my 401(K) gaining value between now and when I need to withdraw any of it.

Note: I don’t encourage waiting to see if the value of your car will go up.  Unless you plan on waiting decades for that also in hopes that it will become a classic collectable.

You Are Not Losing Money In Your 401(k)! is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.