I’ve written extensively about my disdain for mutual funds and the ONLY time I would recommend investing in mutual funds is when you’re a captive investor. When are you a captive investor? When you work for a living and your company has a 401k plan then you’re pretty much a captive investor.

My game plan for 401k investing is pretty simple. For the past 2 calendar years, I maxed out my contribution at around 15k each year. This year, however, I’ve reduced my contribution to 6% which would capitalize on the maximum company match. What magic mutual funds do I invest in? NONE.

I keep most of my money liquid in cash which usually pays only about 3 to 4 pct.

Why do I do this? Years of experience have taught me that market cycles come and go and returns on mutual funds slide up and down and it is therefore important to me not to be caught in a downward spiral right when I’m getting ready to move to a new job. Investing in mutual funds longer term WILL yield some decent returns but the average worker changes job every three to five years so you’ll likely miss out on that long time horizon if you move over to a new company and have to reinvest in a new set of funds all over again.

When I have left previous employers, I have always rolled over my money into a brokerage IRA. I have complete and total control over my money and I’m not limited to mutual funds an employer chooses to provide to me. I can buy stocks, bonds, funds, ETFs, and a whole bunch of other things. I am only limited by my creativity.
Am I concerned about losing out on mutual funds returns during that period? No. I am only concerned about LOSING that money and then be forced to take the loss if I change employers.