401K Advice

Avoid the Wall Street Wizards

Prudent 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.

This entry was posted on Monday, September 14th, 2009 at 1:26 am and is filed under annuities. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.