My 401k in This Current Market Sucks
One of the many concerns that someone with their retirement savings tied up in a 401k faces is what to do with their 401k when the market sucks. Some people will tell you to dump it and run, putting all of your focus on bonds or CD’s. Other people will tell you to hold on and increase your 401k contribution during a market downturn.
So, who is right? Which is the better plan to follow when the market “sucks”?
During a market downturn, or recession, many financial “gurus” will tell their clients and self directed financial geniuses to dump their 401k and put their money into other investments such as bonds or CD’s. This can create several bad consequences, not to mention the 401k early withdrawal tax issues.
Sometimes this advice isn’t all bad, but it really depends on numerous factors, such as how close you are to retirement, your current balance and what types of investments you are currently in with your 401k.
Generally the best advice when dealing with a 401k and recession is to leave it alone or even increase your contribution. But wait, I said increase your contribution? Am I high? Nope, so let me explain.
The 401k is a long term investment device. Generally you want to be investing into your 401k for over 10 years at a minimum to really see the compounded interest and gains. The market historically has adjustments, up and down times throughout the history that can be shown with this chart:
As you can see, even though the market has faced its share of ups and downs, the general trend is up. So where does that leave you with your 401k during this recession?
Many people can’t afford to increase their contribution in this time of higher gas prices and downturn in the economy. My advice would be to not try and sacrifice your family. If you can safely afford to increase your contribution, then you really should explore the possiblity of doing so.
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