Managing a 401k Account in a Poor Economy

The current state of the economy has corporations laying off more employees, consumers spending less money, and the future looking less promising. In times like these it becomes important for everyone to focus on their finances so that they not only weather the storm, but prosper in the long run. While the future of the economy may be uncertain, the importance of making donations to a 401k plan is not. Here are a few 401k account tips for workers to apply amidst shaky economic times.

Start Yesterday
When is a good time to begin investing in a 401k plan? Money experts advise to start as soon as possible. The sooner workers start saving for their retirement, the more time interest has to accrue, and the more money they will have once retired. In addition, deposits are often augmented by employer matches.

Diversify
Education can be a workers main defense against money loss. Asset allocation is important. Another reason to consult a plans provider is to better understand how particular investment vehicles perform. A worker needs to learn the risk levels associated with individual options.

Ask a Professional
Workers should consult 401k account providers regarding their investment decisions. Allocating funds without doing the research beforehand can lead to risky investments, particularly when the economy is fluctuating. Workers can benefit from being proactive and doing the leg work involved with their 401k plan.

Know Its Safe
Many worry during an economic crisis, but those with a 401k plan do not have to worry about losing their money. If the company managing a workers 401k account goes out of business, the workers deposits are still safe. It is not shared or co-mingled with another companys or persons money; a persons 401k plan is that persons alone.

Dont Borrow
Its easy to become concerned that needed funds may not be available. In times of crisis some people decide to withdraw savings from their 401k plans. This is a mistake. People taking their 401k funds early get penalized and miss out on the present rate their money is increasing in size.

Keep Investing
Some people become fearful for their investments during hard times. Stopping 401k plan investments can hurt workers on several levels. They miss out on additional money from their employers (if the employer matches contributions). Many even forget to begin investing again at all or, when they do, invest at a lower rate. It is difficult to determine the behavior of the market. When the market is doing poorly, stock prices fall. Pulling money out prematurely could result in both a short term and a long term loss. Staying the course, while not always the most appealing option, is much better than abandoning ship.

Sources
BusinessWeek
CNN