> the 401(k) simply can’t work as a simultaneously growth-oriented and safe retirement vehicle <
I agree. In a way, growth and safety are opposites when it comes to investing. (I know time is a factor, too.)
I myself follow the (imperfect) rule of stock percentage = 100 - your age.
It works for me. But I do worry about what I’m going to do once I’m over 100 years old. 🙂
Anyway, many mutual fund companies now offer funds that automatically get less stock-heavy as you get older. That makes sense too.
And we're talking about 401(k), 403(b), and similar retirement accounts. We're not talking about independent brokerage accounts. What' we're talking about is mutual funds all the way down. This rather vitiates Mr. Jeeves' argument.
Meanwhile, corporate defined benefit pension plans often dwarf the underlying corporation. They were unsustainable from the beginning.
.... followed by .... "I agree. In a way, growth and safety are opposites when it comes to investing. (I know time is a factor, too.). I myself follow the (imperfect) rule of stock percentage = 100 - your age."
I suggest two things:
1. Wide diversification. I use over 40 mutual funds in my IRA (transfer your 401k/Roth 401k money into an IRA/Roth IRA so you can have way more investment options). 3/4ths of them are equity funds in various asset classes.
2. A relatively high equities-to-bonds ratio like 70%/30%. Yeah, I know it's common to do something like 50%/50%, or the 100-age technique. But those don't fight inflation. Having 70% in equities gives you a fighting chance to keep up with inflation.
Why I do that:
A withdrawal strategy of 4% annually means during a major stock downturn you have 7 years for stocks to regain their value without having to pull from them (the 30% in bonds divided by 4% = 7 years). Major diversification in both equities and bonds gives you even more margin for a stock recovery. If it's time to do an annual withdrawal and your S&P 500 index fund is down, maybe your tech fund isn't, or your energy fund, or your real estate fund, or your foreign real estate fund, or your small cap value fund, or your mid cap value fund, or your Europe fund, or your Latin America fund, or your retail fund, etc. In almost every stock downturn at least one of my 30 equity funds are up -- and even if they're not I have the 10 bond funds to pull from (2 of which are money market funds to give me a the safest ladder this side of FICA-insured savings accounts).
Take right now. Most of my equities funds are down since Brandon. But PRNEX (energy) is up 7.45%, TQMVX (large-cap value) is up 3.24%, and PRDGX (dividend) is up 1.89%. Even if I was retired now (I will be in a few years) I could pull my 4% annual withdrawal from them to let the other equity mutual funds have time to recover. (I'm actually out of equities waiting for them to quit falling before I buy back in, but that gets into timing strategies.)
As another example, look at the huge stock drop from March 2000 to fall 2002. If I had been retired then and was taking my 4% annual withdrawal even at the worst time (fall 2002), I could have pulled it form the TRREX fund (real estate, up 28.5%), PRWCX (common stock fund up 20.75%), TRMCX (mid-cap value up 18%), or PRSVX (small-cap value up 14.9%) even without pulling from bond funds like the PRULX (long-term treasuries) that was up 15.7%.
Finally, look at the huge Oct 2007 - Mar 2009 downturn. Yeah, if I was retired then and taking annual withdrawal at the worst time I'd have to pull from one of my bond funds (like the PRGMX, a GNMA fund that was up 2%) because all of my equities funds were down at least a little. But only for a few months. By the end of July 2009 my TRGRX (global real estate) was back in the positive, already up 5.7% from where it was when stocks started downturning. By the end of the year, TRULX (large-cap core) was up 19% since Oct 2007.