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Groom your 401K for Early retirement!

Your company stock was doing great and your 401K was growing steadily. But recently business has slowed down and your 401K is losing money now. The changes could be drastic. Your 401K could go down as much as 2, 3, 4 or more times. It's important to look after your 401K. If your 401K starts bleeding, you need to keep an eye on it, and in some cases, you might need to make some changes. This site is about how you could do it, what are your options, and things to consider. The information you will find here is gathered by an independent party, which is not a paid or independent financial advisor. The material presented here is for informational purposes and was obtained from different sources. (For more about Privacy, Terms and Conditions go to the Disclosures page). It is the place to start, to get awareness, and know-how; do your research, or turn to a financial advisor to get a better understanding if you need. For "Change Investments" I used a Fidelity 401k retirement account. Fidelity is the largest 401k account holder in the USA. If you have a 401k account it's likely a Fidelity retirement account. Other large 401K account holders are Vanguard, T. Rowe Price, Charles Schwab, ADP, etc. They offer a similar "Change Investments" mechanism.

On May 1, 2021, Altice share was $36.06 and on July 21, 2023, it was $3.36. Here is a hypothetical situation: Your employer is contributing Altice stock as a plan of compensation to your retirement 401K. On May 1, 2021, you had 100K in your 401K. On July 10, 2023, it would be almost 11 times less - about 10K, if you had not made changes in your 401K. These value changes in companies' stocks are taking place not only because of the market downward but could be because of, for example, business maturing and the number of competitors increasing. It has happened to many companies before. If you are in a similar situation, you may consider "Change Investments" in your 401K. You will see how to do it later, but for now, let's continue with our hypothetical situation to find out what would be the benefit of changing investments if any. Suppose, in May 2021 you noticed your Altice stock started losing its value, and you have been watching your 401K closely since. On August 1, 2021, you decided to "Change Investments" from ATUS to FXAIX (Change Investment is available in your 401K retirement account at least quarterly according to U.S. Department of Labor’s guidelines. If your employer offers high-risk, such as employer stock that changes significantly over a brief period of time, you should be allowed to change your investments more often than quarterly).

You placed an exchange request on August 1, 2021, while the market was open (before 4 p.m. EST). When the market closed the price of ATUS was $27.44 and FXAIX was $157.27. If you submitted a transaction before the close of the market on a normal business day (Mon-Fri) your transaction will be priced at market price as of the market close that day. The settlement of this exchange usually settles within one business day from the date the order was processed (some exceptions may apply). On August 1, 2021, your 100K would already decline to $76,095.40 (ATUS=$27.44). After the exchange of investment from Altice stock to FXAIX stock you would receive about 483.89 shares of FXAIX (there is no or very small fee depending on the investment you choose and it's disclosed during the change). As of July 21, 2023, the value of 483.89 shares of FXAIX is $76,696.56 ($158.5x483.89 shares) versa $9,317.82 ($3.36x2773.16 shares) if you still hold your 401K in Altice stock. Even though the market was downward during 2022 your 401k account is about the same value as August 1, 2021, when you did exchange. Market fluctuations are common and happen regularly. That's why it is very important always to keep an eye on your 401K.

Now let's see how to make changes to your 401K Fidelity retirement account. After logging in to Fidelity and clicking on the Retirement account on the left side, you will be taken to the summary of your account. Click on "Change Investments".

There are 2 options here: Future Investments and Current Investments. You are changing your current retirement account, so it's under "Current Investments". The goal is to get out your falling-in-value stock, so there would be 2 options: "Exchange One Investment" and "Exchange OUT of Company Stock". "Exchange OUT of Company Stock" gives you the option to sell your stock in real-time, but it could be restricted by your employer (it's easy, has safeguards, and gives you experience about how to sell/buy stocks if you have never done it. I will try to post how in future). The main difference between these 2 options is that you can sell your stock at a certain price in case of "Exchange OUT of Company Stock" while the market is open at a price you can set. In the case of "Exchange One Investment," you are submitting an exchange order and the stock price would be the market price as the market closes on that day (normally at 4 p.m. EST Mon-Fri). (I encourage you to get familiar with all options, you can cancel it anytime before you submit it). If you have questions, you can subscribe for an email subscription. You can also schedule a meeting if you need to (Contact page).

You could split your current stock into 2-3 or more using % percentage box, $value, or Share units by submitting several exchange orders.

After clicking Continue and Start you will get a list of available stocks. This list is just one of the possibilities your retail account might have. But all of them would have a list of "Large Cap", "Mid Cap", "Small Cap", "International", "Blended Fund Investments or it could be called "Target-date Fund Investments". This list has performance data of available stocks: 1 year, 3 years, 5 years, etc. In this example as of 06/30/2023, Large Cap (Capital) stocks RGAGX and FXAIX performed better than others. In general, during turbulent times Large Capital stocks are more resistant and recover faster, but there could be of course exceptions. The analogy here is single-standing tree has less chance to survive high wind than a tree in a group. If you click on any stock on this list it will open a window with detailed information about this stock (see below).

For example, the Fidelity 500 Index fund has a rating, performance, 12-month Low-High, Hypothetical Growth of $10,000, Top 10 holdings, etc. At least 80% of this fund is invested in the S&P 500 companies for that reason, the movement of this fund is very similar to S&P 500 Index. Last year was turbulent. Since August 2022 the market has been declining rapidly. The 12-month Low-High range of FXAIX was $124.13-$155.01 (as of 07/21/2023). The FXAIX fund value declined only 20% on a worth day during that time. At the same time, the range of Altice stock (ATUS see at the top) is $2.01-$13.17, which has lost value 6 times. Spend your time looking at the list of available investments in your 401K. After you make your choice of stock click "Submit This Exchange". If you submit a transaction before the close of the market on a normal business day (normally at 4 p.m. ET Monday - Friday, non NYSE holiday) your transaction will be priced at market price as of the market close that day. Transactions submitted after the close of the market or on weekends and holidays will receive the next business day's closing price. Transactions are then processed overnight. The detailed results of the exchange you will find under "Activity and Orders" after it is completed.

The rule of 55

If you just turned 55, have enough money in your 401K or 403(a), or 403(b) and consider quitting your full-time job, switching to a part-time job (changing employer), retiring, or just in general it is good to know this rule. The rule of 55 is an IRS rule that allows workers who are 55 or older to withdraw money from their 401(k), 403(a) and 403(b) plans without paying the 10% penalty for early withdrawals. The rule only applies to these plans of the employer they leave in or after the year they turn 55 (you are no longer with this employer). Some public safety workers can use the rule in or after the year they turn 50. This rule does not apply to IRAs or other types of retirement accounts. The withdrawals are considered your income and would be subject to income tax. If you decide to do it you can only withdraw the entire amount (there might be exceptions check with your retirement account holder). Your retirement account holder would withhold Federal and State taxes at the time of withdrawal.

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