Discover the Financial Principles of the Bible

Has Your 401k Become A 201k?

So what is a 201k? No, it’s not some new investment account. It’s just how many individual investors feel after watching their 401k balances drop by 30, 40 and even 50% in the last few weeks.

So while it’s easy to become depressed about the current economy and the falling value of your retirement account, Jesus told us to, “Take heed, and beware of covetousness: for a man’s life consisteth not in the abundance of the things which he possesseth.” Luke 12:15.

None of us can change what has already happened. If we could have had perfect knowledge of what the markets were going to do, we would have all gotten out of stocks last October when the Dow peaked above 14,000.

So what are things you can do now?

Portfolio Evaluation
Timing the market is never a good idea and selling when stocks are at their lowest value in years is an even worse idea. However, you should be regularly re-evaluating your portfolio to verify that is matches your investment criteria. An unbalanced 401k could lead to more sorrow down the road.

Falling equity values have caused many portfolio’s to become unbalanced. This represents a great opportunity to shift more of your money into equities when they are at today’s low prices.

Dollar-Cost Averaging
In the current market environment, it is more important than ever to keep contributing money to your retirement accounts. This constant influx of cash will allow you to buy at the current market lows and reduce your overall average share price.

Reduce Company Stock Dependence
It’s never a good idea to have much of your investments allocated to your company’s stock. You already rely on them for your paycheck, bonuses, benefits, etc. Enron taught us that you can’t also rely on them for your retirement. Make sure that no more than 5 – 10% of your portfolio is in your company’s stock.

Don’t Play It Too Safe
While it’s tempting right now to completely flee the financial markets and place your money in safe treasury bills or FDIC-insured CD’s, that’s not a feasible long-term strategy. Current rates will only earn you 1 – 2%, while inflation rates are running 3 – 4%. So just allowing your money to earn below-average returns could be a damaging long-term strategy.

Adjust For International Exposure
While some investors have over-exposed themselves to the international markets, others have completely ignored it. However, it is impossible to ignore the impact that international markets are having on the global economy. “Fifteen years ago, the U.S. was 70 percent of the global market cap. Today it is 28% and falling,” says Bruce Fenton, founder of Atlantic Financial.

Most financial advisors recommend at least 20 percent of your long-term retirement savings be in international holdings. However, the ideal mix is probably closer to 40 – 50%. Although it’s good to keep in mind that many domestic companies have large international exposure themselves, so be aware that you don’t become overexposed in this manner.

Step Up Your Investing
Particularly if you are young and have several years for the markets to work in your favor, now maybe the best time to invest. While investors nearing retirement should move much of their savings to less-volatile investment options, younger investors should embrace the current market volatility. It’s been years since stocks have been this cheap and buying now could produce some very impressive returns down the road.

Through wisdom is an house builded; and by understanding it is established: And by knowledge shall the chambers be filled with all precious and pleasant riches. Proverbs 24:3-4.

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