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Finding the Cash in your 401K

February 3rd, 2010 Leave a comment Go to comments

If you have investments in a regular taxable brokerage account, it’s easy to find your cash. When you fund your account, the cash is deposited in some form of cash investment such as a money market fund. In your 401K account, where is the cash?

It’s not where you may think it is and it usually has a different name.

Look at your 401K, the investment choices usually fall into the following categories:

  • Stock Investments: Large Cap, Mid Cap, Small Cap, International
  • Bond Investments: High Yield, Bond, Stable Value
  • Mixed Investments: Blend, Equity Income
  • Lifestyle Investments: Target Date funds.

Here’s the Cash

There will likely be different names depending on your 401K account brokerage company. But, the ‘cash’ investment will be named with some variation of ‘Stable Value’ or ‘Money Market Fund’. The term ‘Stable Value’ means that the investment tries to keep its par value (never lose principal).  If you are unsure if your investment is  stable value, check the prospectus and look for this wording.

The Stable Value investment is similar to money market funds that you would find at your bank or in your taxable investment account.

Where the Cash Isn’t

In one of my 401K accounts, the stable value fund is lumped in with other ‘Bond Investments’. Don’t make the mistake of putting your money in a bond fund thinking that it’s cash. It isn’t. Bond funds are not created to maintain par value, they can lose principal.

Bond funds are more like stock investments, you should treat them the same way. Bond funds trade bonds. It is possible to make and lose money trading bonds, just like with stocks. 

Move Into Cash

Now that you know where the cash is, move some money over there, either with an exchange or perhaps in your allocation of new money. It’s a good idea to have some cash in your portfolio to take advantage of market downturns. 

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