In terms of a National or World disaster is there any way to protect my 401k from?

Question

being obiverated? My current plan offers a US obligations as one of the fund options, I believe this is basically an interest fund that does not allow you to make much money, but I think it offers some safety that the other funds do not. Is my assumption correct on this matter or not?

Answer 1

Yes, you are absolutely right.

Your company's 401k plan will include several choices for investment. Usually, 401(K) plans include mostly stock mutual funds or a stock/bond blended mutual fund. You have described a government debt fund, which has significant defensive qualities in case of a "national or world disaster".

Unlike stocks, bonds tend to appreciate in value in times of crisis.

Here's why:

Bond prices are inversely related to the interest rate on them. When crisis happens (e.g. 9-11 Terrorist Attacks), the Federal government usually dramatically loosens its monetary policy in order to try and stabilize the financial markets. Specifically, the Federal Reserve usually slashes overnight lending rates and the US Treasury is accomodative in currency policies (e.g. slowing down issuing debt, printing more money - to essentially boost money supply).

These moves help drive down interest rates. When interest rates drop, bonds yields drop, but the bond price rises. Since bond yields are fairly low now, there is a high amount of "convexity" to the bonds. You don't need to know what that is right now, but the bottom line is that the rising prices would more than offset the drop in interest rate.

Bond funds tend to have low volatility, which makes them safe investments - but as you rightly pointed out, you're not going to make much money. The key is that inverse relationship with rates/prices. When rates drop, you get less interest on your bond investments but you've made money on the capital value of the bonds. Conversely, bond funds lose money on the value of the bonds when rates go up. So you always win when you lose and lose when you win.

I hope this helps.

Answer 2

national world DISASTER nad you want to now if the business world,will be ok ??????????? dig a whole get some cans of beans and a lighter.

Answer 3

Do like Cheney is doing and put your money in Euros.