King Solomon said, “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.

One of the most effective ways that you can prepare for retirement is by contributing to your company’s 401k plan. Unfortunately, nearly 30% of individuals who have access to 401k plans decline to participate at all. For younger workers under the age of 30, less than 50% contribute to 401k plans.

Providing for a secure financial future is one of the marks of a prudent individual. Making regular contributions to a 401k plan while you’re young results in two major advantages.

1. Since you have an early start, you won’t need to contribute as much of your salary as you would if you started saving for retirement later in life.
2. Due to the power of compound interest, your nest egg will end up much larger than if you delayed saving for retirement.

The primary advantage in contributing to a 401k plan is that most companies will match your individual contributions up to a certain level. While these matching programs vary widely, the most common formula used by companies is a match of 50 cents on the dollar up to the first 6% of pay, according to the Profit Sharing/401(k) Council of America.

An individual making $50,000 per year that contributes 6% of their income to their 401k plan receives an additional $1,500 on their $3,000 contribution. The matching contribution from your employer results in an immediate 50% return on your investment. Failing to contribute at least enough to receive these matching funds is the same as declining free money.

Most companies consider their 401k matching program to be part of the overall benefits package that they offer employees. When employees fail to take advantage of this program, they are in effect declining part of their compensation package.

While it’s always recommended to contribute at least enough to receive matching funds from your company, you shouldn’t just stop there. The end result of years of savings will be affected by two factors:

1. How your investments perform?
2. How much you contribute to savings?

You may be surprised to learn that how much you contribute generally plays the biggest role in how much money you will have when you retire. So while you should start out by contributing enough to receive the maximum matching levels, you should also strive to increase your savings levels by 1-2% each year. An easy way to do this is to just increase your 401k contribution level each time you receive a salary increase. This allows you to increase your retirement savings without reducing your take-home pay.

The increasing optimism is particularly evident in the real estate markets. The recovery in the real estate markets is now being heralded by financial pundits everywhere. On June 16th, Mad Money host Jim Cramer boldly announced that the housing market had bottomed.

The numbers seem to be supporting these bullish claims as well.

• July existing home sales increased 7.2% and have now risen four months in a row.

• Home prices increased 3% in the second quarter, marking the first increase in three years according to the Standard & Poor’s/Case Shiller’s national home price index.

• Single family new housing starts increased 1.7% in July.

• New home sales increased 9.6% in July.

• Inventory for new homes now stands at 7.5 months, the lowest level in 16 years.

• The National Association of Realtors Pending Home Sales Index rose 3.6% during July marking the fifth straight month of increases.

• The NAR’s Housing Affordability Index continues to show signs of improvement.

• Mortgage rates continue to remain at abnormally low levels and currently average only 5.3% for a 30-year fixed loan.

In addition to these “green shoots” within the housing markets, the government’s $8,000 first-time homebuyer’s credit remains in effect until November 30, 2009.

So how can investors capitalize on the recovery in the real estate markets?

Buy A House
If the real estate markets have indeed hit bottom, now would be a perfect time to buy a new home. This is a particularly attractive option to first-time homebuyers who don’t have to worry about selling their existing home. They also have the benefit of low mortgage rates and the $8,000 tax credit.

The glut of foreclosure properties on the market today also presents some attractive opportunities to pick up rental properties.

However, not everyone wants to become a landlord or is prepared to sink a large amount of money into a home. Never fear, here are five additional ways for investors to capitalize on the housing market recovery.

Real Estate ETF’s
One of the simplest ways to invest in real estate is to buy a real estate ETF like ICF (ICF: 60.56 +0.72%) or IYR (IYR: 51.65 +0.35%).

Home Builder Stocks
You could capitalize on the improvement in new home construction by investing in the companies building the homes like Toll Brothers (TOL: 17.36 +1.64%), KB Homes (KBH: 11.38 +0.35%), DR Horton (DHI: 11.02 +1.29%), Lennar (LEN: 14.77 +0.41%) or Brookfield Homes (BHS: 7.45 +1.64%).

Home Improvement Retailers
A good way to play both the improvement in new home construction and the increase in existing home sales is to buy home improvement retail stocks. Increasing numbers of home builders, home buyers and home sellers are all positive developments for Home Depot (HD: 28.51 +1.64%) and Lowes (LOW: 20.74 +1.27%).

Real Estate Mutual Funds
Another easy way to invest in real estate, is to buy shares of a real estate mutual fund. There are currently over 200 real estate mutual funds available.

Banking Stocks
Increasing economic stability and rising home prices should benefit large banking stocks like Bank of America (BAC: 14.04 +0.07%), JP Morgan (JPM: 40.28 +0.17%) and Citigroup (C: 4.10 -0.49%) with their broad real estate exposure.

Of course there still remains a great deal of uncertain regarding a recovery in the real estate markets as well as the broader economy. No one knows for sure what “shape” this recovery will take. However, given the severity of the downturn in the housing markets over the last few years, we are likely to see at least some recovery in the real estate markets over the next few months.

However, it appears that the Obama administration is beginning to recognize that their healthcare reform plan is too aggressive. Already there are indications coming out of the White House that there is willingness to scale back their healthcare initiatives in the face of strong popular resistance and worries about the overwhelming costs of public healthcare. 

This positive news has lifted healthcare stocks recently, with the healthcare sector of the S&P 500 gaining 5.3% since June 30th. However, the big move in healthcare stocks appears to still be ahead of us and we have identified five stocks that should be compelling to investors. 

Abbott Laboratories (ABT: 49.08 +0.20%)
Despite strong growth prospects and a decent dividend yield, this healthcare stock is currently trading near its 52-week low. 

2010 Revenue Growth: 7.7%
P/E (ttm): 13.3
Dividend Yield: 3.6% 

Gilead Sciences (GILD: 33.32 -0.27%)
This high-growth healthcare stock has seen its stock price rise 12 consecutive years.

2010 Revenue Growth: 14.9%
P/E (ttm): 18.7
Dividend Yield: N/A

Medtronic (MDT: 36.97 +2.41%)
Wall Street’s consensus estimates appear to be too low for this healthcare stock which could provide an opportunity for investors to capitalize on an upside surprise.

2010 Revenue Growth: 5.5%
P/E (ttm): 19.0
Dividend Yield: 2.2%

Eli Lilly (LLY: 35.60 +0.42%)
Two words…dividend yield. The stock offers dividend investors a whopping 6.0% yield.

2010 Revenue Growth: 6.3%
P/E (ttm): N/A
Dividend Yield: 6.0%

Celgene (CELG: 55.15 +2.70%)
Another high-growth healthcare stock that could deliver a 40% return to investors if it returns to its 52-week high.

2010 Revenue Growth: 20.4%
P/E (ttm): 84.3
Dividend Yield: N/A

The recent massive rate cuts and economic stimulus package indicates that the government thinks the economy is in worse shape that many had originally expected.  While these actions may indeed boost the economy and financial markets in the short-term, over the long-run they may lead to an even worse recession in the future.   

One of the primary issues with the current economy is that the average consumer is very highly leveraged.  They have taken out home equity loans and racked up high credit card balances to support a lifestyle they couldn’t afford.  The sub-prime loan crisis was in large part caused by individual’s sense of entitlement to houses they couldn’t afford.  

The motivation behind the Fed’s recent rate cuts is to make money cheaper by enticing consumers and businesses with lower interest rates.  Unfortunately, giving highly-leveraged consumers access to cheaper money may hurt the economy in the long-term as they use cheap debt to continue to fuel a lifestyle they can’t afford.  

Greed and indiscretion has led us to this point.  Government handouts and cheaper debt won’t correct the situation.  And it goes much deeper than just the housing market.  Household spending, consumer debt, financial sector profits – all need a correction to get back to sustainable levels. That’s bad news for investors and the global economy, which still depends heavily on U.S. consumption for growth. 

So how can you navigate the current market volatility without losing both your money and your mind?  Well, maybe the most important advice is to take a step back and remember that it’s just money.  Money should serve you, rather than you serving money.  That being said, there are some specific investment strategies you can take to benefit from the current market conditions. 

Bear Funds

There are several mutual funds out there which hold “bear” portfolios.  These are funds that sell short, buy put options, use leverage, or employ other strategies to increase in value as stocks decrease in value. 

Bonds

When the stock market begins to decline, investors often run to the safety of bonds.  This ends up driving their prices up and their yields down.  Also, the recent Fed rate cuts have also hurt bond yields.  A 10-year government bond currently yields around 3.5% while a high-quality corporate bond yields around 5%.  So while bonds tend to be much safer than stocks, don’t expect them to deliver spectacular returns. 

Defensive Stocks

Defensive stocks are those companies which tend to perform well regardless of whether the economy is good or not.  These are consumer staples companies – providing products that consumers need regardless of the economic situation.  Food and utility stocks are perfect examples, as consumers will still need to eat and warm their houses regardless of what the overall economy does. 

Precious Metals

When the stock markets falls, investors tend to flee to the safety of precious metals.   Already gold prices have topped $900 and most expect it to top $1,000 before the year is over.  It’s possible to capitalize on these rising prices by either investing in individual mining stocks or precious metal funds.  

Value Investing

It’s easy to get depressed when you see the stock market dropping and all you hear is gloomy news about the economy, but maybe you are taking the wrong point of view.  When people go to the mall and find a spectacular sale – they are generally quite excited.  The same can be true in this current market.  Lots of good quality companies suddenly find their values greatly depressed by the current economic misery.  Buying these companies can end up being the smartest investment decision you make.  For example, after the dot-com bubble burst, Corning (GLW) saw its stock price drop to under $2 per share in late 2002.  However, just four years later the stock price was back over $20.  Individuals who were able to invest in a pessimistic marketplace ended up with phenomenal returns.  Those types of returns are only made possible by the excessive negativism that prevails during a bear market. 

Finally, it’s important to remember is that even the worst economic recessions don’t last forever.  The U.S. economy is extremely resilient.  Over the last 63 years, there have been 10 recessions. The average length of these downturns has only been about 10 months.  In fact, there have only been 2 recessions in the last 25 years (early 1990’s and 2000-2001) and both have been relatively brief. 

So while the economy will certainly recover from its current recessionary woes, the prudent man still should foresee the evil that could come over the next few months or even years.  Unemployment always rises in periods of economic recession.  So now would be a good time to make sure you have an adequate Emergency Fund in case the worse should happen.  It is recommended to have at least enough money set aside to cover 3-6 months worth of living expenses.  This money should be kept in a safe and highly liquid savings or money-market account. 

It is also a great time to focus on any outstanding debt that you do have.  Recent Fed rate cuts have lowered mortgage rates to their lowest level in years.  So it may be wise to consider refinancing your home if you have a higher interest rate.  Also, any credit card debt you have should be attacked immediately.  Living a financially-responsible lifestyle will enable you to weather any type of economic conditions.

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.