What should you do with your 401K?

March 3, 2009 9:19:40 PM PST
If you have a 401K retirement plan, chances are it is worth less today than it was a year or even a month ago. [CHECK THE MARKETS: Get the latest numbers from Wall Street]
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As the market tanks, so does the value in the retirement tool of choice. So what should you be doing with your 401K now? That's a question millions of people are asking and while there may not be a single one-sized-fits-all answer for everyone, there are things you can do to stem the losses.

There was one thing on the mind of most in the lunchtime crowd with whom we spoke Tuesday and it wasn't the daily special. It is the daily drubbing of their 401K.

"We talked about it on the way over here," said John Webb of his 401K. "I think about it every day."

A lot of 401K investors say they are not sure what the next step should be.

"I really don't know what to do at this point," said 401K investor Delores Ortega. "I really don't know what to do."

Faced with mounting losses, many 401K investors are doing nothing.

"It's definitely going to come back," said 401K investor Preston Brown. "I mean, it's got to."

The market will eventually go up and some analysts are saying right now, stocks are on sale so investors should keep the money pouring into the 401K.

But others offer different advice.

"You need to look at things from scratch right now because of al the turmoil and changes in the market," said Dr. Arthur Warga, dean of the Bauer College of Business.

Dr. Warga recently changed his own retirement investments.

"My future contributions toward retirement are going toward something very safe right now," he said. "I am not selling my stocks."

Financial advisers say you should not sell off your 401K funds. Some say that while you keep what you have, move at least a portion of future contributions into something like a money market account within your 401K plan. When the market bounces back, you can use the money market to invest on the way up instead of buying on the way down. To do that, call your 401K plan administrator.

"Start looking at the risk you are taking inside of your 401K plan," said financial advisor Lance Roberts.

Roberts says 401K participants should not ignore losses, but they should not stop saving for retirement either.

"Instead of a growth fund, use a balance fund," he said. "Instead of a high yield bond fund, use a treasury money market fund to preserve principal."

If you don't know who is managing your 401K account, find out. If you have a human resources department, they can help you get the information you need to find help within your 401K plan. In some cases, you can move your contributions online.

As for those stocks, it is true. Moving contributions to a money market account will keep you from missing out on some of the gains when the market starts going up. But striking a balance is important and again, what works for one person may not work for another.

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