Target funds are passively managed, which means nobody is sitting there trying to buy the bottoms and sell the tops, which is what we call actively managed funds. Not having anyone to constantly babysit them is what makes passively managed funds less expensive than actively managed in terms of expense ratios.

Target funds tend to consist of other passively managed index funds that provide broad market coverage and whose objectives are none other than to mirror the performance of a wide range of securities in a particular asset class.

If your friend’s 401k suffered a 50% loss in 2008 and did not recover on the way back up, that means either your friend panic-sold, your friend was in a (very poorly) actively managed fund, or (most likely) your friend is full of shit.

Regardless, I would recommend not taking financial advice from your friend.

To answer your question, as long as you hold passively managed index funds, you do not have to worry about someone “selling your stocks if the economy tanks.”

Back in 2008 my retirement account was being managed by a friend that had recently become a “financial advisor” at Edward Jones. I was living outside the US for a few years and was completely unaware how bad the economy was. When I got back and checked in with him and discovered he had made horrible decisions and lost 90% of my money. In his brilliance he decided to sell all of the shares at the absolute bottom of the market and buy bonds with the leftovers. I essentially lost 10 years of my retirement savings because of my stupidity in trusting someone else with my money.

Work colleague crystallised their losses during the GFC by selling their 401k and changing the asset allocation to Cash.

They didn’t convert it back to stocks until 2018…

I worked with a fellow once who said something to this effect right after the market went down during the pandemic. He said something like “I lost $50k yesterday”, and I asked him “oh really? Did you sell a bunch of stuff? If you still have it it’ll go back up eventually”.

He said “No I didn’t sell anything, but in 5 years everything is going to be lower than if the market hadn’t gone down”.

That take is also wrong. As you can see in this graph, things bounced back, and in general continued on the same trajectory.

Just like there was a sharp decline, there was also a sharp increase. Without the decrease, the increase wouldn’t have happened, so the fellow I was working with was wrong, because his take would have meant the sharp increase would have happened even without the sharp decrease.

You have control by default. If you hire a financial advisor to manage your funds, you’re giving them control but you can tell them not to sell ever and they will do what you say.

It depends on who is managing your money and what their investment strategy is. So many people, including “experienced money managers”, treat the stock market like it’s a blackjack table. Trying to capitalize on the rise and fall of stock prices which are often driven by investor enthusiasm; or lack thereof. They’re like dust in the wind.

“Buy low sell high” is a great slogan but a lousy investment strategy. Investments are a long game. When you, or whoever is managing your 401k, buys stocks they’re using your money to buy ownership in a business. Diversification, not having all your investments in one stock or even one industry matters. Long term viability of the businesses you invest in matters. Investing in good, sustainable business that are not overvalued (meaning the stock price exceeds the book value) matters.

You want someone managing your money who does their research, understands what they’re investing your money in, and knows that when stock prices go down, it’s the best time to pick up more good investments at a discount. Not to panic and sell everything. That’s almost always a losing strategy.

That said, Lots of 401k’s are invested in index funds which have a detailed investment strategy that the broker handling your 401k should be able to provide you with a copy of.

Have you heard about Bob?

So is there a way to prevent someone from selling your stocks if the economy tanks?

You can read the prospectus that comes with each of your investments. It will describe how it is managed pretty early in the text.

Almost any low fee index fund isn’t going to be active enough to lock in losses. To my knowledge, it hasn’t happened to any of the algorithm run ones. It could happen, but it’s quite unlikely, and it would likely result in immediate legal action requiring the algorithm owner to provide some remedy to those hurt. An index should rebalance, but should never exit the market.

And while a “target retirement age” fund could technically sell early and lock in losses, that would be an actual prosecutable crime. So as long as your provider isn’t running an outright scam, with a plan to flee from the law, you’ll be fine with a target retirement fund.

If it’s a “personal” one it does whatever you or the person you pay to manage it wants it to do.

A lot of it is by “shares” for company/government 401ks though.

Depending on the economy one share might be worth $20 or $200.

Some people in multi index funds will try to time it. When the market is bad they switch to the high risk index, knowing the fund rarely sells stock and wait for prices to go up. When their up and don’t think it will last, they put it in the safe but practically no interest indes.

Most people aren’t good at that.

“Lifecycle index’s” start high risk when you’re young, and slowly shift to low risk when you get close to your chosen age.

Because at 30 a crash on your 401k doesn’t matter, if anything it’s when you should max donations. But a recession the year you’re gonna retire means you keep working till your 401k.rebounds.

when i cared about this stuff awhile back, i remember you could specify when setting up the account how aggressive you wanted it managed. from zero (set it and forget it, long term stocks) to more risky funds that traded shit around constantly.

it all seemed like gambling to me so i handed it over to my spouse and promptly stopped caring.