The stock market has been on a great run over the past 4 months since hitting its low point in March. However, when you look at your 401K balance, it’s probably evident that you still have a long ways to go to get back to where you were 18 months ago. There are plenty of people who took their money out of investments exposed to the stock market and have not yet stepped back into the market who have missed this 50% rally over the past 5 months. If you want to see your 401K start to move in the right direction again, consider these steps:
- Reassess And Rebalance: Many people are not in the mood to be as aggressive in their 401K as they were prior to this recent market meltdown. Most financial websites have tools and calculators that will help you to determine your risk tolerance and decide what percentage of your money should be in equity investments as opposed to bonds or cash. The key is not to be more aggressive or less aggressive than you have been in the past, but to determine the mix of assets that will allow you to sleep at night but still put you in a position to achieve the returns you need to recover and eventually retire.
As a whole, Americans are taking less risk with new contributions to 401K portfolios, investing 68% of new money in stocks compared to 75% just a few years ago and 80% during the year 2000. The mix of stocks and bonds that is right for you is based on a large number of factors but determining your proper asset allocation will be an important part of your personal recovery plan.
- Increase Your Contributions: One of the hardest things to do when you’re losing money in your portfolio is to add more money. However, it is the right thing to do. Think of it this way: stocks are on sale right now at heavy discounts. It’s impossible to say when this sale will be over or whether or not the discounts might get better, but you’re buying stocks at a pretty low price today.
You can’t control the market, but you can control how much you save. A survey taken several months ago showed that only 1/3 of eligible employees were contributing at all to their 401Ks, as many had been scared away from the market. If you stopped contributing, it’s time to start again, and contribute at least enough to take full advantage of your company match.
- Adjust Your Goals: Let’s face it, we’d all like to retire as early as possible, and you probably have had a goal in mind of when you’d like to retire that is looking more difficult to achieve today than it was two years ago. Most of us also have an idea of what life will be like when we retire and how much that lifestyle will cost.
What happened in the stock market is out of your control and you also have no control of the pace of recovery in the stock market. You do, however, have the ability to adjust your vision of the future and be willing to work a little longer before moving into retirement. You need to at least consider the possibility that you’ll either need to work longer or live on less during your retirement.
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