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Investment Strategies For General Motors Employees- Do's and Don'ts for Your Personal or Retirement Savings Plan

One of the biggest challenges when saving for retirement is understanding how to invest your 401k. There are very few quick and easy ways to know for sure that you are making the right decisions. Over the years I have had the privilege of working with several General Motor employees and retirees. Each of them seemed to have used a different strategy when managing their PSP (Personal Savings Plan) or RSP (Retirement Savings Plan). Some strategies were effective and some were not.  I’ve compiled the major “Do’s” and Don’ts” when managing these plans.

Don’t – Cherry Pick your Investments

Cherry picking is when someone looks through the performance of the available investment options in their retirement plan and picks the investment or investments that performed the best the last couple years. This is also know as “chasing returns”. This strategy can be dangerous because the market goes in cycles. It is not uncommon for the category of investment that has done the best the last few year to do the worst the next few year. For example, in the late 90s technology stocks were on fire but in the early 2000s we had the tech bubble. Similarly, gold and emerging markets stocks had a great run during the early to mid-2000s but have had under whelming performance since. The last several years Large and Mid Cap US stocks have outperformed most other investments so it is not a surprise that the Ariel Fund and LSV US Large cap value have been some of the best performers in GM’s PSP over the last 5 years. I am not saying these investments are going to suffer large losses in the near future but it would not be wise to put too much in these funds simply because of their high returns in recent years.

Do – Match Your Investments to Your Situation & Needs

An appropriate analogy for GM employees and their investments is vehicles. A farmer needs a Silverado 2500, a soccer mom will want a Acadia or Traverse, and a business person that drives 40,000 miles a year many want a Cruze (definitely not a Prius). Similarly, a new employee who is in their 20s or 30s will want to own mostly stocks because they have time for their accounts to recover if the market crashes. Someone who is only a few years away from retirement will want to be more conservative because they don’t have as much time for their accounts to recover. My suggestion is to sit down and write out your goals (when you want to retire, what you want it to look like, etc.) then make your investment selections based on this. The State Street Target Retirement funds may be good for this, but working with a qualified financial advisor to develop a plan specific to you can be even better.

Don’t – Try to Time the Market

Have you heard the saying “Buy low, Sell High”?  In theory “buy low, sell high” is a great strategy, but it is extremely hard to get right. The market is very unpredictable and most attempts at timing it fail miserably. To get it right, you not only have to sell at the right time, but you need to buy back in at the right time. As the market has recovered since 2008, I have had many conversation with clients who were convinced that we were going to experience another crash and wanted move all of their money to cash. I have had these conversations in 2010, 2011, 2012, 2013, 2014, 2015, 2016, and 2017. Some of my clients listened to me and stayed invested while others chose to move their money to cash or bonds. Since 2010, the S&P 500 has more than doubled in value and investors who have been waiting for a correction (aka “opportunity”) lost out on significant gains. I am not saying that we won’t see a significant market downturn in the not too distant future.  We cannot know an exact day, time, or the severity of that, but market downturns are normal. The key is using strategies that withstand the market, rather than time it.

Do – Stay the Course

Once you write your goals down and develop a plan around those goals, do your best to stick to the plan!  If finances get tight, try not to take a loan out on or reduce your contributions to your 401k. This is especially important if the market is down. Taking a loan or reducing your contributions while the market is down is equivalent to selling low. Consistency is key when investing for retirement!

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

This article is written by Brandon Carter.

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