Should market conditions influence my decision to rollover?

Should I Roll Over My 401(k) After the Market Drops?

if you're going to reinvest immediately (let's say you're going to roll it into your current employer's plan), don't worry too much about how much your balance went up or down. You'll be immediately reinvesting. If your current 401(k) dropped by 5%, the new 401(k) probably dropped by the similar amount and it's a wash. As long as you haven't changed how your money is divvied up between stocks and bonds, you're going to earn the same return regardless of where that money sits. It really doesn't matter when you transfer it, the return you earn will be the same. 

No one can perfectly "time the market", nor should they try. At the end of the day, the high fees that result from keeping an old account will probably cost you more than suboptimal market conditions.

But just so there's no doubt...


Let's say you've got $100,000 in an old 401(k) -- 75%, or $75,000, is invested in a Standard & Poor's 500 index fund while 25%, or $25,000, is in a total bond market fund. And let's assume that over the course of a year, stocks stage a rally and gain 20%, while bonds return a more modest 5%.

If you leave your money in the old 401(k), at the end of the year your balance would be $116,250 ($75,000 plus a 20% return equals $90,000 in stocks; $25,000 plus a 5% return equals $26,250 in bonds.)

If you then roll over your 401(k) balance at the end of that year to your new 401(k) or IRA, your new account will start with a balance of $116,250.

But what if, instead of keeping your dough in your old 401(k), you rolled over your $100,000 into your new employer's 401(k) or an IRA? As long as you reinvested 75% of the rollover proceeds in an S&P 500 fund and 25% in a total bond market fund, you would start out with the same amount in ($75,000) in stocks and bonds ($25,000), earn the same 20% return on stocks and 5% return on bonds, and end up with the same balance of $116,250.

We make the rollover process as fast as possible so you don’t have to worry about out-of-market risk and the financial losses associated with it.

What is out-of-market risk?
Out-of-market risk occurs when money is removed from the market for a period of time, potentially stifling your financial growth and negatively affecting your retirement plan.
In the time it takes to rollover or consolidate your retirement balance during job transition periods, your money is subject to out-of-market risk. Rollover time and processing lags can pull your investment out of the market and prevent it from appreciating in value. You may even lose money if you attempt an indirect rollover and do not complete it within the 60-day window, forcing you to pay fees and taxes on your balance.
How can I avoid out-of-market risk?
When transferring or consolidating your retirement balance, your money will be out of the market for a period of time, so your money’s growth will inevitably slow. But by speeding up the rollover process for participants with employer-sponsored retirement plans, Manifest reduces the effect of out-of-market risk on your account. And because Manifest is a direct transfer process, out-of-market risk caused by human error is also reduced.
If you are in between jobs, Manifest’s IRA rollover option allows you to invest your retirement balance without the need for an employer-sponsored retirement plan. That way, your money can get back into the market sooner and keep growing.
The frequently asked questions, or FAQs, are intended to be helpful and to get you thinking in a more sophisticated manner about your account transfer and related issues. However, these are not meant for accounting, tax, finance, or legal advice, not intended to be exhaustive, and do not create any relationship or duty on our part to assist your particular situation. We offer no warranties on the accuracy or completeness of the information as there could be developments of any kinds, including, but not limited to, any changes in relevant laws and regulations.