401k and the Current Market

Buy and Hold.  Wait and See.  Do All You Can to Keep Your Job.

As we work through the first 100 days of the Obama presidency, the stock market has found “a bottom” at about 8500, and shares wallow there as investors wait and see.  Consumer confidence is down, and investor confidence has declined even further.  Looking at their 401k’s and the current market, wise investors ought to wait and see.  And the average working guy, if he still has his job, should wait and see what Congress and Wall Street can do to change the outlook for 401k’s and the current market.

All shrewd investors should wait for credit markets to loosen up, for the government and ace economists to figure out how to manage “toxic debt,” and for Congress to quit bitching and get busy stimulating anything and everything that will recover lost jobs and generate revenue.  With your 401k and the current market, just wait and see: don’t do anything until the index arrows start pointing north.

“Wait and see,” however, does not mean “neglect.”  Carefully examine your 401k and the current market, prudently assessing whether or not you need to make some changes.

The experts say much of the decision about altering your 401k in the current market depends on your age.

Investors in their twenties should make a quick check of their holdings, making sure they properly have diversified.  Holding their 401k’s in the current market, young professionals should allocate 1/3 of their investments to conservative funds, 1/3 to moderate-risk investments, and 1/3 to aggressive investment products.  Twenty-somethings also should double-check to make certain they have their 401k investments spread across market sectors more or less resistant to recession.  No one knows where to find those recession-proof market sectors, but twenty-somethings should have their 401k money in them. And for them, it’s pre-tax withhold and keep on working as usual. 

For thirty-somethings, 401k and the current market tell pretty much the same story.  If maturity has brought more risk tolerance to the folks at mid-career, they could consider moving some of their assets into more aggressive funds, and they could speculate that, maybe, a few major retailers will rebound.  Otherwise, punch the clock and keep on going.

Baby-Boomers Have the Most at Stake

The baby boomers have the most to ponder as they examine their 401k’s and the current market.  Midway through their fifties and some turning sixty, most baby-boomers still imagine they just graduated college, and they still feel a little uncomfortable in their roles as adults.  Far from ready to retire, many look at the “70 ½   provision” in the 401(k) and Roth regulations, and they figure they’ll just keep on working.  Now that they have passed the big five-oh, they can make catch-up contributions, increasing their 401k growth and reducing their tax liabilities.

For other baby-boomers, however, looking at uncertain futures, and especially looking at the prospect of becoming responsible for their parents’ long term care, that safe and secure 401k no longer seems so safe and secure.  Carefully examining 401k and the current market, those over sixty must think about moving to government bonds or certificates of deposit.  For those who will require stable, steady growth over the long haul, the stock market remains too volatile.

Rekindling the spirit of the sixties, some baby-boomers ought to consider the radical alternative.  Some ought to leave their corporate jobs and put their experience to work in start-ups of their own. Holders of 401k’s may rollover their accounts when they “separate from service.”  In other words, experienced, aggressive baby-boomers should take off their suits, get out of their comfy cubicles, start their own businesses, and put the old 401k into a more flexible and far more liquid IRA. 

And if you’re over sixty, thinking about retiring, and generally feeling old for your age, it’s still not too late to make the best of a difficult situation.  Even with a 401k and the current market, liberal catch-up contributions and continuing work until 70 1/2 ought to make-up for recent losses. But supplementing the 401k with government bonds and certificates of deposit will help secure a safer future.

401k Investing Advice

The 401k’s great advantage comes from your control over where and how to invest the funds.  Most 401k plans give you a fairly broad array of preferred stocks and sound mutual funds from which to choose.  Although your employer may “match” some of your cash contributions with shares of the company’s stock, the majority of your 401k assets may go into the investment instruments you prefer.

In the spring of 2009, however, as the economy goes into a deadly tail-spin, most people have no good, reassuring plan for choosing the right investments.  During the fall of 2008, 401k’s lost considerable value no matter where or how people had invested—yes, some more than others, but sharp declines across the board.  Pressed to give sound investing advice, the so-called “experts” shrug and suggest, “Hang on to your job, and keep trying to save your money…somehow.”

Giving more practical 401k investing advice, shrewd, prudent investors say that, especially in bad times, you should stick to the most basic common-sense rules of sound investing.

Good 401k Investing Advice

Buy and hold.  Do not move your money around every day, every month, or every year, trying to catch the quick surge or “time” the market.  Instead, choose investments with proven track records, and stick with them.  Do your homework, looking for recession-proof funds or companies.  But once you make a choice, commit to the choice and stay with it.  Over twenty years, almost all stocks and mutual funds outperform more conservative investments like government bonds and certificates of deposit.

Better 401k Investing Advice

Set your risk-tolerance at “moderate.”  Some market sectors and cutting-edge companies seem “poised for explosive growth.”  Poised doesn’t work nearly as well as proven.  If a major corporation has begun expanding its global markets, the corporation and its investors incur some risk; but the same products and principals that have driven the company to industry leadership will sustain it as it goes global.  That’s a “moderate” risk.  Learn a lesson from sad “Bluetooth” investors: Although it was poised for explosive growth, the company that originated and patented the universal technology has not returned more than 2%-3% since it revolutionized wireless communications.

Best 401k Investing Advice

Diversify.  Anyone who ever risked putting all his eggs in one basket probably ended-up with omelets.  Study the market, looking for those companies, sectors, and funds that have held steady while everything else tanked.  Put most of your assets in those stable places–plural.   Then assess which few companies have grown even while the others have lost.  Put a few of your funds there, too.

Although you probably feel discouraged and disheartened that your 401k has lost value in the economic downturn, keep in mind that you still have all the tax advantages from your contributions, and you still have lots of time.  Offering their professional 401k investing advice, experienced investors stress that market contractions evanesce.  The markets keep growing.  The veterans generally suggest you maintain or even increase your 401k contributions; if you have passed fifty, take advantage of your catch-up contributions, and keep getting your 401k investing advice from the people who do not work on Wall Street.