The recent recession is somewhat unique in that the credit markets have been dragged through the mud with the equity markets. Bondholders, generally considered to be in a safer position than stockholders, aren’t feeling so at ease. Over the past year bonds across the risk spectrum have declined in price amidst speculation that default rates could skyrocket in 2009 and 2010 to levels unseen since the Depression. As a result, investors with a few years on their time horizon may have a real opportunity right now if they pick and choose their investments carefully. Bond prices are down overall and yields are relatively high. The potential payoff could be even greater if the default rates remain contained and the credit spreads start to narrow.
Over the past few months I’ve fielded more questions than usual regarding overhauling 401k plans and switching providers outright. The concerns have come from employees and business owners who have found that all or most of the investments in their 401k plan correlate too closely with the major stock and bond indexes. Participants are having a hard time finding ‘hiding spots’ during the turmoil. At a time when most of the major indexes are suffering badly, workers are seeking access to alternative asset classes such as gold and special minerals, energy, fixed accounts and even inverse or ‘bear market’ investments. So what makes a 401k plan good or bad? What can you do to get a better plan in the door at your company?