MY EMPLOYER’S 401(K) plan is great, with a generous matching contribution and lots of investment options. Those looking for even more choice can open a brokerage subaccount within the 401(k), allowing them to buy thousands of securities.
I’ve stayed away from the brokerage option, in part because I feared the extra choice might affect my investment discipline. But my growing anxiety about inflation forced me to reconsider.
I want a predictable cash reserve to cover my expenses for the next 10 years, independent of how the financial markets perform. That’s why a large portion of my 401(k) is invested in Vanguard Short-Term Bond Index Fund (symbol: VBIPX). Problem is, while the fund should hold its own in a broad market decline, it does little to preserve my money’s purchasing power.
Everywhere I look, I’ve been noticing price creep. Initially, I took it as temporary phenomenon, the result of a post-lockdown spending surge. But the inflation spikes of recent months have spooked me. My anxiety kept rising despite the Federal Reserve’s insistence that this was only temporary. I’ve always felt that even the Fed—the expert of experts—has a hard time predicting and controlling inflation.
To tame my anxiety, I opened a brokerage subaccount in my 401(k). The process was simple and quick. In a few days, I was able to raise cash by selling a large portion of my Vanguard Short-Term Bond Index Fund. I used the proceeds to invest in inflation-indexed Treasury bonds through another low-cost Vanguard fund (VTIP).
Was it a good move? My rational self is half-convinced. But my emotional self couldn’t be happier. Sometimes it feels good to have a little insurance.