Sell, sell, sell.
Those words seem to be front of mind with all investors these days. And your 401k participants are not different. They’re worried about the market and they’re worried about their retirement. Here’s what to tell your 401k participants:
- This too shall pass. No matter how bad it seems, this financial crisis will end and people will invest again.
- You lock in your losses only when you sell in a down market. You don’t lose money until you sell of your stock holdings at a loss. Otherwise, it’s only a paper loss.
- We weren’t kidding about diversifying. Asset allocation is essential at every stage of your life. You need to know your risk profile. The Dow lost 678 points yesterday. Do we ever need to remind you again?
- Now is not the time to bail out of your 401k. Yeah, the market is bad, but you still need to save for your retirement. You still get the tax advantage of saving in a tax-deferred plan.
- Don’t listen to your uncle. Everyone has an uncle that tells them how to invest. Ever notice how he’s usually wrong? This time he’s really going to be wrong. Don’t stop saving for your retirement and use the money to build a survival shelter. Just don’t.
It’s no fun right now folks. And it’s going to get worse. But let’s make sure we pay attention to the longer picture. Meanwhile, I’m stocking up on soup.
{ 8 comments… read them below or add one }
Q: What's the hardest thing for people to do with their investments right now? A: Nothing. Psychologically, that really hurts. I suggest if you're feeling the need to do something — anything — you should increase your contribution just a bit. (I did, and I feel better.)
Laura, that's the best advice of all. That is really smart…sit tight and save more. WTG.
Darn, I hate being the voice in the storm! I can't give advice to anyone, because I'm putting my few bucks in my mattress. Maybe it's my age, but I'm not convinced that we're coming back from this mess soon. If you're twenty or thirty-something, you probably are better riding it out…
I may be the only person to say this, but think of it this way. The entire market is on sale right now. I bought AAPL for $12 in 2002. 52-week high is $202. Do the math. The only thing that should prevent you from pouring as much as you can into your 401k, especially if your employer is matching (free money, folks, there is no reason to avoid free money, ever), is the notion that the entire world economy will collapse and the stock market will be worthless.
Sure, it happened to the Romans, but I'm not certain there's a Mehmet II knocking at our door just yet.
Right now might not be a good time to invest in the traditional “stable” stocks (stocks with a beta of 1), but it might be a good idea instead to invest in stocks you know will a) not be controlled by the government and b) have inherent value that is presently devalued. An example might be AAPL, of course – they're not going anywhere in the ten year timeframe, but retail's going to hurt this christmas – or TIF for the same reason. Consider also some of the more esoteric mutual funds like FOSFX. Funds that deliberately invest in devalued, risky markets.
But that's just sound financial advice. Invest in, say 50% “reliable” stocks, 25% “growth” stocks, and anywhere from 10-25% “risky” stocks that may drop to zero, or may quadruple in value.
But whatever you do, don't drop out of the market because that is the only way to ensure somebody like me will come along and buy up your stock and cement your loss. When you do get back in the market (and you will), and the prices are “normal” again, you've lost that 40% or more that the stock rose.
Hint: limit orders.
Well said, except for the uncle part. I have very smart uncles, so maybe mine are the exception rather than the rule.
LOl, yeah, some uncles do know what they're doing. You're right…listen to them, but stay away from knucklehead uncles.
Thanks. Very encouraging words. It’s tough to stay even keel in this market.Mutual Funds for Young Investors
Great…Now I have to read your other posts. That means my afternoon productivity is shot…Thanks a lot. Nice post.
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