Investment Strategies for General Motors Employees – Do’s and Don’ts for your PSP
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 a different strategy they used when managing their PSP (Personal Savings Plan) or RSP (Retirement Savings Plan). Some strategies were effective and some were not. In this article, I am going to explain several of these strategies and give my professional opinion on the effectiveness of each.
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 over the last couple of years. This is also known as “chasing returns”. This strategy can be dangerous because markets typically go in cycles. It is not uncommon for the category of investment that has done the best for the last few years to be the worst-performing in the next few years. For example, in the late 90s technology stocks were on fire but in the early 2000s, they suffered serious losses (the Tech Bubble). Similarly, gold and emerging markets stocks had a great run during the early to mid-2000s but have had underwhelming performance since. The last several year’s large companies in the US with a growth focus have outperformed most other investments so it is not a surprise that Fidelity Contra and Fidelity Growth Company Funds have been some of the best performers in GM’s PSP over the last 5 years. They both own mostly large US growth companies. 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. Balancing your portfolio across different sectors, asset classes, and countries is a much more advisable strategy.
Do – Match your investments to your situation and needs
An appropriate analogy for GM employees is the similarities between investments and vehicles. A farmer needs a Silverado 2500, a soccer mom will want an 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 those goals. The State Street Target Retirement funds available in your plan 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
We have all 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 fails miserably. To get it right you not only have to sell at the right time, you need to buy back in at the right time. For example, as the market has recovered since 2008 I have had many conversations with clients who were convinced that we were going to experience another crash and wanted to go to cash. I had these conversations in 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017... Some of my clients listened to me and stayed invested and others moved their money to cash or bonds and have been waiting years for an opportunity to get back in. I am not saying that we won’t see a significant market downturn in the not too distant future. Market downturns are normal and we may or may not see one soon. We are all better off making our investment decisions based on our own situation and goals rather than trying to guess what the market is going to do.
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 your 401k or reduce your contributions. This is especially important if the market is down. Taking a loan or reducing your contributions while the market is down is basically selling low. Consistency is key when investing for retirement!
I hope you found this article helpful! If you have questions or are interested in a complimentary consultation, feel free to reach out to me at email@example.com or (517) 347-4337.
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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.Written By Brandon Carter