401K » Retirement Plans

When the economy starts to dive and the prices of securities and other assets start to fall, investors need to be proactive in implementing investment strategies in order to insulate themselves from a true bear market. One investment instrument that you should pay special attention to is your 401k. Here are some steps to recession-proof those investments:

1. Find safe investment harbors. Those who are prudent in their savings strategies may want to seize this moment to invest in bonds. Federally issued bonds are low-risk, guarantee a rate of return and are considered one of the most simple ways to diversify an investment portfolio. The yield rate for savings bonds is just enough to hedge out the average inflation rate of 3%. What you will be giving up as far as a high yield will be more than made up for with peace of mind.
2. Buy more shares. One great thing about the market decline is that some choice stocks are now more affordable to the average investor, and that includes dividend stocks. Dividend stocks are like traditional stocks, but with the added boost of yields that can be physically distributed to investors when they occur. Because the prices of those instruments are fairly low, recessions are a good time invest so when the market does improve, you will be able to get a little more cash on the side.
3. Buy inverse ETFs and other commodities. Investors may also be able to recession-proof their 401k plans by investing into funds that actually thrive in bear market conditions. Some of the funds are compromised of gold (which tends to increase in value as the dollar declines) and derivatives to short the S&P 500 Index. Strengthen your 401k even further by investing in leveraged inverse funds as they are constructed to profit from a market decline (based on the value of its chosen underlying benchmark).

In hard times, it is important to do something to strengthen your 401k investments, as in the end, your investments are not really meant to manage themselves.

If you work for a company that offers a 401k retirement plan, and you participate in it, you may be getting company stocks as part of the deal.

If you are, you could also see those company stocks get special tax treatment. The company stock you have in your 401k plan requires some special consideration should you be moving to a new company, or thinking about rolling over your 401k funds into an IRA.

Companies that offer their stock as part of their employees' 401k retirement funds do so because the employees will receive special tax treatment for these stocks. So, let's say you buy $50,000 worth of company stock as part of your 401k. You then decide to rollover your 401k money into an IRA.

If your $50,000 investment has grown to, say, $100,000, then with an IRA you'll be paying taxes up to the limit of 35%, because the money will be seen as regular income. If you choose to separate these stocks out of your 401k when you roll it over to an IRA, however, you will only pay taxes on the $50,000 as regular income for that year, but the difference of $50,000 (your profit) will not have to be paid until the specific stocks are sold. When that happens they will taxed at a lower capital-gains rate tax of 15%. This could really save you a lot of money in taxes.

To learn more about reallocating employer stocks when doing a rollover, 401ks, IRAs, capital gains taxes and other issues concerning investment and retirement, be sure to consult with a financial adviser. He or she will share their expertise with you and help you craft the best retirement investment strategy possible. After all, when it comes to managing your money and your retirement, getting wise advice will turn out to be invaluable.

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