Investment Inn

If your 401k is invested in the stock market, you saw a loss in 2008. You might have sat by helplessly as your retirement savings dwindled. Your first instinct and it might still be a consideration is to get out now. You can start to pull out of your stock funds and invest in safer bets, like bonds and money markets, but is it the right idea? It all depends, but on what?

Your diversification. Most individuals mistakenly believe that 401k diversification means investing in a collection of stocks and bonds. Yes, it does, but there’s more. With stocks, you need to examine the industry. Never invest in just one, like the auto industry. Diversify your stocks so that if one industry suffers, you still have the others to fall back on.

When diversifying, consider consumer spending habits. The entire stock market took a dive in 2008 due to the poor economy.

If you’re invested in stock that might not recover as quickly as the rest, like with the auto industry, consider pulling out of those stocks, but do not remove all your stock investments. Switch to a money market account or purchase different stock. Remember though that the economy will begin to improve, it will just take time. In fact, that leads the next factor.

Your age. How old are you and when do you want to retire? If soon, you might be unable to wait until the economy improves and stock prices rise. In that case, take the stock that you lost the smallest amount of money on. Protect yourself from losing more. Even if you intend to retire in 3 years, give some stock a chance to improve. Do this with your biggest losers.

But then, if you’re young and do not intend to retire for 15 years or more, you can and should wait it out. The stock market and the economy will improve.

The amount of money you’ve lost. As previously stated, several 401k account holders lost money in 2008 due to the poor economy and stock market. If you’re nearing retirement, you might have lost $150,000 or more. This is cause for concern. Since the market is expected to turn around soon and consumer spending will improve, try to wait it out. If you can’t, start making the switch. With that said, concentrate on still steady stocks. Even if you only have two years until retirement, give the bigger losers a chance to improve. In this aspect, you’ll recuperate a small percentage of your loss, but it’s better than nothing.

In short, it’s a good idea to pull away from 401k stocks in some cases. In most instances, it’s best to weather the storm. If you’re unsure what to do, speak with a financial advisor.