What is the risk involved in switching my 401k from conservative to aggressive?

Question

Here are the details...

From: MFS Conservative Allocation Fund RS
To: MFS Aggressive Growth Allocation Fund RS

...and is it a good idea?

Here is the deal, I am 37 and never started investing until a few months ago with the new job I started, they match 50% and I am only contributing 4% of my $25,000 salary. I first signed up with a conservative allocation fund but after talking with a few people I changed it to the aggressive allocation fund...I guess it is a large growth pre-mixed selection of mutual funds, just not sure if I made the wise choice??

Answer 1

Most folks other than quick never answered your question, so I'm gonna take a crack at it.

Overall, different instruments have different risk/reward expectancies. The conservative portfolio typically has a much smaller variance and risk, and thus lower returns. The aggressive portfolio should be more biased toward stocks and thus have a higher risk and reward.

In the long run, which is why you need to take in to consideration your time horizon, the more aggressive portfolio should outperform the other ones. However, in the short term, there's more volatility.

For example, bonds pretty much return the same amount year after year with pretty small variance. The stock market as a whole is more aggressive, but in general over time should yield 8% or more. However, in any given year, the stock market might go up 20% or down 20%.

Does that make sense?

In 10, 20, 30 yrs, the stock market most likely kicks bonds returns. But, if we had a recession in 2009 and stock market went down, it might take several years to dig out of the hole. Meanwhile, the bonds just plod along.

Hope that helps!

Answer 2

The risk is that your aggressive investments could go down the toilet. They could also hit all the numbers of a winning ticket. You should not have all your eggs in an aggressive basket, some is OK. The off the rack rule is that when you are young, load up on growth stocks, when you are old go for income. As you get older, adjust the mix.

Answer 3

It all depends on your time horizon. If you are young and have 25 or more years to go until retirement, you can afford to switch to the aggressive fund. You will be able to make up any losses in the market with a longer time horizon. If you're closer to retirement and can't afford to lose too much of the money you have in there now, keep it in the conservative fund.

Answer 4

Nobody knows what the stock market will do.

Aggressive means there's a greater probability that you will get a higher return IF the market does well. IF the market does poorly then the aggressive investor will lose more money.

Answer 5

I'm a Financial Consultant. If you are no longer working for that company but still have the money in the 401k, let me know and I'll roll it over to an IRA under me. Email me and let me know, I'll help you with better investments than the crap you have now.

Answer 6

check with Morningstar and see it's rating.are 4 or 5 stars...........
aside from that, agressive means more risk, more reward..MAYBE!