Any investment in the financial markets can result in the loss of the hard-earned money you have invested and your employer’s matching contributions. You can also lose any interest, dividend, or capital gain income you have earned. In other words, your 401(k) account can go right down the tube during a poor economy and falling stock market. You already know this if you have slogged your way through the fine print of a document you received when you set up your 401(k) called the prospectus. Not only are you taking a hit from a down stock market, but you are paying the fees for your 401(k) out of your currently existing (but falling) funds instead of growing income.
Here are some ways to stop or at least slow down the bleeding from your 401(k).
Switch Some of Your Portfolio Assets to Safer Investments
You can switch some of your portfolio assets to money market funds or certificates of deposits. They will essentially safeguard your money until the economy and the stock market is back on an upswing. If you have a high percentage of assets in risky securities like stocks, then you may want to move at least some of that money into the safer assets. This is particularly true if you are over 50 and nearing retirement. For younger people, this should be considered a temporary strategy. When the market starts recovering, you should make your way back into some percentage of stocks.
If You Have Left a 401(k) Behind, Roll it Over
If you have changed jobs and have left a 401(k) behind at a previous job, you might want to consider rolling it over. Place it with a broker whom you trust and who can advise you on an appropriate investment strategy given your age, risk tolerance, and market conditions. Don’t cash in your 401(k)! You will pay at least 10% in taxes and 10% in penalties, losing 20% upfront, in addition to the losses you’ve already taken.
Your Company’s Stock
If your 401(k) is primarily invested in your company’s stock, make a change. You need a little of everything in your 401(k) including safe investments such as money market securities and even government bonds. In a troubled economy, you can hold some of your own company’s stock and other stock, but slice down the percentage.
FDIC Insurance Cap is Now $250,000
The cap on FDIC insurance is now $250,000. If you can move some of your investments to a FDIC-insured account, now is a good time to do so.
Follow these tips and they may help you manage your 401(k) retirement plan during difficult economic times.
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