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For many American workers, just thinking about the damage done to their retirement accounts since the beginning of 2008 can be painful. Worries of a U.S. recession have sent worldwide markets into a tailspin, dragging hundreds of billions of dollars invested in retirement plans along for the ride.
So what can you do to stem the flow of any more money out of your 401(k), 403(b) or 457 plan?
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Let's start with what you shouldn't do: DON'T stop contributing to your retirement plan or cash it out entirely.
Sure, 300-point Dow plunges in a single day and relentless talk of a recession are scary. But, remember, you're in this for the long run -- even people in their 50s, 60s and 70s shouldn't worry too much. You won't need all your savings immediately, and because retirement can be a 30-year prospect these days, your investments have time to rebound.
"Just because things are happening (with the stock market) doesn't mean you have to take action," says Clare Bergquist, director of 401(k) strategies at Charles Schwab. "The action you need to take is: Take a deep breath and assess your plan."
Here's what you should do:
Study your history. "Remember, markets go up and markets go down, but history has proven that over the long term, they go up," Bergquist says. Over the past 20 years, the Dow has had some tumbles far worse than the 8% it's fallen this year: a 23% drop in October 1987 when the stock market crashed; a whopping 47% plunge during the 2000-02 bear market; and a 684-point plummet the day the stock market reopened after the September 11 terrorist attacks.
After each of those drops, though, stocks rebounded, and markets reached new highs. Taking the really long view, large-company stocks have returned an annualized 10.4% since 1926, according to Ibbotson Associates, an investment-research firm.
Plus, for long-term investors, a market downturn can be a good thing. "At the point where it's most scary, it seems the most bleak and you're the most depressed, that's the point when there's the least risk and the biggest gains are to be had," says Brent Brodeski, managing director of Savant Capital Management, a fee-only financial planning firm in Rockford, Ill. You can buy more stocks -- or mutual funds -- at cheaper prices, then reap the rewards as the market recovers.
Study your investment plan. Your retirement account is for buying and holding investments, not for day-trading stocks. But now might be a good time to review your plan based on your personal situation and risk tolerance, Bergquist says.
POSTED BY: Maurice (February 07, 2008 05:00 PM)
There is only one sure way of protecting your retirement from the uncertainty of the stock market. Investing in an Index Universal Life plan. It's way better than a 401 (K) plan because your money is safe, you can't lose it and you're guaranteed decent returns when the market appreciates. I think it's a bad idea to put so much money in 401(K) It's inflexible and there are too many penalties along the way...
POSTED BY: Shane (February 08, 2008 03:49 PM)
...most managed funds (the bulk of 401k funds available) UNDER-PERFORM the market. Joe is exactly right, the fund managers take 1-5% right off the top. It's IMPOSSIBLE to beat the market over the long haul by 5% a year to make up for these fees. Joe isn't talking about picking individual stocks, he's talking about just buying into these index funds...You'd be very smart to move most or all of your 401k money away from managed funds and into index funds if your plan offers them. And if it doesn't, you should suggest to your HR dept that they consider the option.
POSTED BY: james m. (April 26, 2008 10:36 PM)
I have been retired for about 3 years and at present don't need any of my 401k to get by. When or should I do anything with my 401k? Thanks any input will be greatly appreciated.
