Yes, the values of various stock are falling every day and the media can not make up its collective mind if we are coming out of the recession or if there is still a long road ahead. What does all of this mean to you, the average investor. Well, if you are still working and contributing to your pre-tax 401(k)’s, 403(b)’s, or IRA savings your strategies for salvaging your retirement will include reviewing all of the investment options found in your 401(k), etc.
Many of the pitfalls within an employer based pre-tax plan begin with the investment choices placed in the plan. The lack of experience in setting up 401(k)’s, etc. caused the corporations to rely upon their need to develop “something” for their employees to invest in on a pre-tax basis.
Pensions were being dissolved, rolled into other pre-tax accounts for the employees and eventually led to the current investment decisions you still may have in your 401(k); either too few or too many mutual fund choices, little differentiation between the funds of any one category and often very little real diversification of the portfolio.
The pre-tax mutual funds did not offer a mix of large, mid/small or international funds in either a growth, value or blend style. Often one mutual fund may contain the same stock corporation found in two or three other mutual funds within the same pre-tax plan. As your plan grew it was not an issue because all of the mutual funds were growing because of the same stock, but in a bear market the same stock flowing throughout all of your mutual funds could cause a major decrease in fund values.
Your responsibility begins by reading the descriptions of the asset choices within your particular plan. Besides a company stock purchase plan your options may include 5-10 mutual funds. You may have one or two of all of the following options; cash options, bond choices and asset classes in large, mid or small capitalization companies in either value, growth, or international stock companies.
Look for the diversification within your employer plan.
Basically, a mutual fund consists of a small percentage of multiple corporations within one asset class chosen by a fund manager to balance and support the companies inside the mutual fund. For example, if the fund manager purchases large capitalization companies like Coca cola, he might balance it with Pepsi products; purchase Mac Donald’s and support the fund with a Burger King purchase. The fund may own a variety of different segmented companies as well, and may include purchases of health care corporations, oil companies and/or financial institutions.
Next, ask your investment company to send you a fact sheet which describes the mutual fund, explains how the companies are chosen inside the fund and the names of the top ten companies owned by the mutual fund. You will be interested to know how your mutual fund is constructed. Is the fund heavily invested in oil companies, banks, mortgage companies?
In the current economic situation you may want to discuss this mutual fund with your advisor.
Asset classes are cyclical and move from value to growth, and back. They also favor small cap, international, large cap or bonds at various times in the market environment. Risk and reward are the two major factors an investor needs to look at when considering his asset choices.
In the market failures of 2000 to 2003, value funds were often discounted as unfavorable to investors. The world was invested in Blue chip Growth. But value became the place to be for the next 4-5 years. Cash was also belittled as most investors felt that cash wasn’t working if it was in the bank. Yet cash was seen to be an important commodity during that bear market as it is in today’s.
The most important ideas to recognize is that the stock market has never been more global than it is today. Factors affecting our economy are having an effect on the whole world. So new strategies are important and understanding the economy and its effect on your investments is essential to the renewal of your savings. You need to be able to speak to your advisor and help him to realize that you are an active participant not a bystander in your account. You will want answers from him/her. So know your questions. Remember that you can change your investments in 6 months or a year from now as the stocks weather the storm.
Today, your risk may be less aggressive, you may want to put more money into cash, you may want your advisor to actively discuss dollar cost averaging your money into the market slower than your monthly contribution. Ask for suggestions and strategies. Ask your advisor to describe the market economy for growth or value investments. Ask him to show you fact sheets that describe the construction of a recommended mutual fund. Feel comfortable with the ideas.
Stock market issues affect investors differently. You will want to recognize that there are some issues that will not affect you at the same level that it may disrupt the savings of your friends over 65. What to do if you are over 65 and you are no longer saving into your investments? Preservation of your cost basis is key.
This market may start to come back soon but based on what happened in 2000, I would suggest that you may have 3-5 years of leveling and fluctuating markets. I would suggest talking with you advisor and moving into cash or bonds. Have him discuss the bond funds that he is recommending and find out how it is being affected specifically, in this market. Do your own research as well. Move into cash and dollar cost average your money back into the market as slowly, or quickly as you feel comfortable.
If you are invested in annuities you may still want to move into a cash fund within your annuity and then reinvest your cash slowly back into the investments within the annuity.
Author’s Note: This article published here.
…
Irene A. Majchrzak helps people retire debt-free with a sense of well-being and the freedom to have the things they want. Get her free ebook, Debt Free to Retire, by going to http://debtfreetoretire.com/
Read more articles written by Irene A. Majchrzak
Related posts:
- Understanding Your Telecom Bill
For most business owners, just looking at your phone bill can cause panic or dread. Instead of checking line by line for accuracy in the invoice, you probably look at the total, sigh, and write a check. With all the new services available, you need to understand your invoice so... - Video Podcasting Understanding RSS
Since both podcasts and video blogs depend on RSS for their success, it is important that you have a clear understanding of what RSS is, and how it works. RSS stands for Really Simple Syndication, or Rich Site Summary, or RDF Site Summary – whichever you choose. As you can... - Understanding the Roles of Respite Caregivers for Seniors
Caregivers for seniors are typically paid providers but they may also be volunteers from a government or nonprofit organization. Where care is being provided in the home there is often a mix of formal and informal care provided. And the trend is towards using more formal care since, unlike the... - Understanding PE in Men: Is It a Psychosomatic or Physical Condition?
Notice: The information in this article is being provided to help couples to understand the realities of premature ejaculation in sexual health, and the available treatments for it. If you are disturbed by this topic, please quit reading this article now. Disclaimer: This article is not meant to provide health... - Understanding the Maintenance, Repair and Replacement of Ball Joints
A ball joint is an important component of your car’s suspension, located on the front end of the vehicle. Ball joints will wear out over time and cause handling problems as they continue to deteriorate. It is important that you have these joints inspected, particularly if you are experiencing handling... - Understanding The Challenges Of The Link Building Game
Many webmasters who have been following the discussions about Google’s dislike of paid links have been confused about what constitutes bad links and good links, in the eyes of the search engine companies. In this article, I will seek to answer many of the questions people have on this topic.... - Understanding Gambling Addiction
There’s nothing wrong with gambling, if you use it the right way – as means of having fun, as a hobby or a way of de stressing. The danger comes when the roles get reversed and gambling starts using you. When you start to gamble not to relax, but because... - Understanding Compulsive Gambling
People gamble for many reasons. Some do it for the pure thrill and fun of it, and others just because they’re feeling lucky, and many do it out of habit. There are some people who gamble as a way to relax, socialize or just escape from everyday lives. Whatever the... - Marketing Coaching: Understanding the Basics of Page Rank
You’ve just built your website and you want to show up on the search engines. You start reading about SEO and one of the first things that jumps out at you is something called “Google PageRank.” You know about the big dog of the search engines, but what is PageRank... - Understanding The Due On Sale Clause On Your Home Mortgage
The “Due On Sale Clause” is among the most frequently misunderstood and most-feared legal terms in American contractual law. In this article, we are going to take a look at what it is, what it is not, and how to avoid violating it. What Is The Due On Sale Clause?... - Understanding Connotations in Tag Lines, Business Names and Monikers
The following closer on an email was meant to clinch my interest in an information product, but it did the opposite: “I would love for you to experience the same kind of worldwide notoriety my clients have enjoyed for years.” As a professional word person, I knew instantly that this... - Understanding the State-Mandated Minimum Auto Liability Insurance
It has been estimated that as many as 15% of all drivers on the road in the United States do not have liability insurance for their vehicle. Of course, that estimation does not take into account drivers in New Hampshire and Wisconsin, who in previous years were not required by... - Understanding Uninsured Motorist And Underinsured Motorist Insurance Coverage
Uninsured Motorist (UM) and Underinsured Motorist Insurance (UIM) are often the most under-appreciated and misunderstood forms of insurance available to consumers. I recall as a child, an uncle who had worked for an insurance agency declared to my parents that Uninsured Motorist (UM) and Underinsured Motorist (UIM) insurance coverage were... - Taking Advantage of the Stock Market
Is the market rebounding? The Dow, leveling out each week because it gets a rise in the market one day and a pullback the next day, comes from investors’ taking their profits. This will probably continue for a year or so until the really large investors such as Hedge Fund... - Why 529 College Savings Plans Still Make Sense
When the economy went sour and took the stock market with it, lots of pundits came out swinging against 529 college savings plans. “You see, you saved all this money for college and now it’s gone,” they exclaimed. They claim that investing for college in stocks is risky and, therefore,...