Salvaging Your Declining 401k
When everyone starts feeling the pinch of a failing economy, 401k’s are longer safe. Whether you are experiencing the loss in thousands or tens of thousands, it is times like this that people may panic and try to abandon the sinking ship that they used to call their “retirement portfolio.” However, there are better ways to react and ultimately salvage your ailing 401k investments.
Handling a Losing Portfolio
The first thing not to make any rash decisions. If you are still making contributions to the plan through your employer, feel free to continue doing so. Do not close the account, cancel your contributions or do anything rash that you may later regret. Unless otherwise stated, your employer will still make the matching contributions they promised you in the first place and drastic measures will result in the forfeiture of this free money.
Diversification
With any type of investment strategy, diversification is key to lessening your chance of financial ruin. You may consider delving into your 401k plan and switching the allocations of assets into lower risk instruments or diversifying the portfolio mix into bonds, foreign and domestic stocks. How you perform this rebalancing act should be based on how close you are to your retirement as the closer you are, the more conservative your investments should be.
Do not forget that it is not just your portfolio declining in value, but many investment instruments, such as stocks. They were previously out of your price range but may now be a bit more affordable. Those lower prices can be taken advantage of by increasing your 401k contributions, as then more money will be invested in less expensive investments and when the market rebounds (which it will), you can score great gains.
Whatever you do, do not panic!
