How To Fix Your 401(k)

If your retirement plan has taken some punishing blows, these remedies can ensure that your golden years aren't tarnished

September’s attacks on the World Trade Center and the Pentagon left investors shaken and stirred. For the preceding 18 months, it seemed that stocks could go nowhere but down, and the murderous assault on two of America’s most recognizable symbols made things even worse. During the first week that trading resumed, the Dow Jones industrial average plunged more than 1,370 points, or 14%, the worst week since the Depression, and a sure indication that we’d become a nation of nervous investors.

Amid such a backdrop of uncertainty, millions of Americans evaluated their portfolios. In particular, those who participate in 401(k), 403(b), and similar retirement plans had to make decisions about next year. How much should you contribute and how should you allocate those dollars? Is this the time to pull back, leaving your money in the bank (or even under the mattress), or is this a great buying opportunity, a time to buy stocks for 25% or 30% less than they were selling for two years ago?

BRAVING A NEW WORLD
Shocks and aftershocks shouldn’t deter investors, according to several experts interviewed by BLACK ENTERPRISE. “Stay focused on your long-term goals,” advises Femi T. Shote, a senior financial planner for Asset Harvest Group in Waltham, Massachusetts. “Based on the performance after previous disasters, markets may rebound in a short time period and wind up even stronger than they were.”

Shote points out, “The Dow dropped 4% on the day President [John F.] Kennedy was assassinated, but rallied quickly,” adding, “When the threat of the Gulf War emerged, markets fell 6%, but once the conflict began, markets rallied sharply.” The years following the crises (1964 and 1991, respectively) were good ones for stocks.

Therefore, investors who hunker down now or flee may be making a mistake. “Attempting to time the market may have a dramatic impact on your returns,” says Shote. “Missing just a few days when stocks recover can make a substantial difference in the long term.”

FIVE STEPS TO COVER YOUR DOWNSIDE
At year-end 2001, the question for 401(k) investors is whether to be bearish because of short-term fears or bullish about the long-term promise of equities. The answer, for most people, is to seek a happy medium by allocating contributions to both stocks and bonds. How can you keep your balance?

1 Meet your match. If your plan has a company match, put in at least as much as you need to get the maximum employer contribution. “If you don’t get the full match, you’re giving up part of your pay,” says James Herbert Hunt IV, a registered investment advisor in Morristown, New Jersey.

According to Hunt, you should contribute enough to get the maximum match because saving for retirement should be the primary goal, even if you’re concerned about paying for your children’s education. “When the time comes for them to go to college,” he says, “they can borrow any money they might need, but you can’t borrow money for your retirement.”

2 Make match-less decisions. What if you want to make larger contributions? Next year,

Pages: 1 2 3 4 5 6 7 8 9
ACROSS THE WEB