Since the company pension has become more of a myth than a reality for most employees, the 401k has stepped in to take its place. In today's volatile market, many people have seen their nest eggs shrink. These are difficult times for banks, where investment banks Bear Stearns was sold to JP Morgan Chase at bargain basement prices and Lehman brothers has filed for bankruptcy protection. Locally, we have seen Indymac bank taken over by federal regulators after its inability to redeem deposits.
Needless to say that these have been historic times and not in a good way. If you have seen the value of your 401k drop, you are not alone. What's the best way to deal with losses? You can reduce your exposure to the stock market by diversifying into bonds or by buying insured certificates of deposit. The risk you run is that when the market gets back to normal, you might miss out on the upside since stocks have outperformed bonds and cd's substantially in the past.
These are definitely trying times, but there's no need to panic if you have a long term horizon. If you have a relatively short horizon, this might be the time you sit down with your financial advisor and review your risk tolerance and confirm your retirement goals.
Wishing You Wealth in all its Greatest Forms
Alex
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