A Post-Downgrade Pep Talk

Written by Brooke Wagner
DENVER (CBS4) – Watching the stock market swings puts all of us on edge — mainly because of three little numbers and a letter: 401(k).

The closer you are to retirement, the more concerning this is. In uncertain times like these, examining your portfolio and retirement savings feels a little like going to the doctor. What we know can’t hurt us, right? Ignorance is bliss? Well, there may actually be something to that. Mega investor Warren Buffett quipped, “As far as you are concerned, the stock market does not exist. Ignore it.” His point being, those of us who invest for retirement — not for a living or as day traders — should let the market take its course and let life go on.

The average 401(k) investor has the same deduction per every paycheck. This is essentially dollar cost averaging, one of the oldest, most tried-and-true investing techniques in the book. It means, you don’t buy and sell based on the market, but rather buy the same number of shares at the same time interval every month, year, etc. The philosophy is, this reduces risk and increases profit over time.

Despite rough times, the market still eventually trends up over the years. Of course, it must be said, there’s no guarantee. But the bottom line is, in theory, if you stay the course, your 401(k) should balance out or improve with time. For some, that may mean delaying retirement until the market improves, and these are the folks most impacted right now. Plus there will always be some market watchers who see the economy going down the tubes. There’s just no way to know for sure.

I am not a financial expert and certainly this blog should not be taken as professional advice, but my dad always taught me to take a deep breath, buy … and hold.

Many experts call this market a “bargain” buying opportunity for those who have the money to invest. Losing sleep over your 401(k) will only make it worse. But if you feel better taking action, check out one of the hundreds of retirement calculators available on line (e.g. bloomberg.com/personal-finance/calculators) and make sure your retirement mix is where you want it to be.

What’s right for a 50-year-old is not what’s right for a 30-year-old. The conventional wisdom used to be, whatever your age, that’s the percentage of bonds you want in your portfolio. So a 40-year-old would hold 40 percent bonds, 60 percent stocks. That doesn’t always hold anymore. Here’s a CNN calculator for deciding on your ideal mix.

Most experts recommend re-balancing or at least re-visiting your portfolio once every one to three years.

Certainly, most experts would tell employees not to decrease their contributions to a 401(k). However, most people have the option to invest in a Roth IRA, which allows investors to take out their initial investment without penalty. If it makes you feel better to be able to get your money back out, this could be an option for you.

Though financial turmoil like this can make us all feel helpless, it’s a time to be realistic. Most of us will work longer. It’s likely we’ll pay more for Medicare and get less Social Security. So we need to save more.

Maybe it’s not a time to panic, but a time to take stock. No pun intended.

For ideas on protecting your retirement portfolio, I found a great article; “The 10 Steps to Protect Your Retirement” from Forbes.

And here’s a look at four mutual funds that have stood the test of time in 401(k)s.

Best wishes!

Don’t forget our CBS4 Deals of the Day, and please pass along your thrifty tips in the comments section! I’d love to hear from you.

About The Blogger

– In her Brooke’s Bargains blog Brooke Wagner writes about finding bargains and saving money for her family. She calls it one of her favorite hobbies. Blog entries cover everything from the latest steals, deals, and freebies to cheap family activities, saving for college, and what to buy right now.


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