"It is in such a bubble and will break soon in my opinion." Concerned about stock market bubble, should I reallocate 401k to bonds?

Hi Money Minder,

I’m 45 years old and I’ve got my 401k invested in 2045 target funds with Fidelity. These funds mostly consist of domestic and international stocks with a small portion in bonds.

I’m really worried about how overvalued the stock market seems right now. It feels like a bubble that’s going to burst soon, in my opinion. Unfortunately, I can’t just cash out the 401k funds. Do you think it would be a good idea to switch my 2045 target funds to 2025 target funds instead? The 2025 target funds have more bonds and are considered more conservative. Thanks a bunch for your help!

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Response from THE MONEY MINDER:

Hello There,

Hello, it’s understandable to have concerns about the current valuation of the stock market, particularly when it comes to your retirement funds. It’s great that you are proactive in wanting to address this issue. In terms of reallocating your 2045 target funds to 2025 target funds, it might be a good idea to consider the implications thoroughly.

Switching to a more conservative investment strategy, such as moving to a 2025 target fund with more bonds than stocks, can help reduce your exposure to market volatility. Bonds are generally considered safer investments compared to stocks, especially during economic downturns. However, it’s essential to keep in mind that by reallocating to a more conservative fund, you may potentially miss out on higher returns that stocks could offer in the long run.

Before making any decision, it would be advisable to consult with a financial advisor who can provide personalized guidance based on your risk tolerance, financial goals, and timeline for retirement. They can help you assess the current market conditions and determine the most suitable investment strategy for your 401k.

Ultimately, it’s crucial to approach this decision thoughtfully and consider all factors involved. Your retirement savings are a significant part of your financial future, and it’s essential to make informed choices that align with your long-term objectives. Feel free to reach out to us if you need further assistance or have more questions. THE MONEY MINDER wishes you the best with your financial decisions.