Market Unsteady; 401(K) Advice Firm

Copyright 2010 ProQuest Information and LearningAll Rights ReservedProQuest SuperTextCopyright 2010 The Journal-Gazette Fort Wayne Journal Gazette

Advertisement

February 1, 2010 Monday Home Edition

SECTION: BUSINESS; Pg. 6C

LENGTH: 665 words

HEADLINE: Market unsteady; 401(k) advice firm

BYLINE: DAVID PITT, DAVID PITT Associated Press

DATELINE: DES MOINES, Iowa

Millions of 401(k) accounts have made up lost ground over the last 10 months, helped by a stock market surge and continued contributions. The question now is how to keep from backsliding when market momentum slows or reverses.

With the market up more than 60 percent since it hit its low in March, many believe a sharp downturn – or a correction, as Wall Street calls it – is likely. The last thing investors can stomach is the market reversing itself and snatching away more of their retirement money.

So, what to do now?

Don’t forget the fundamentals. Experts recommend revisiting the basic principles of investing and offer some additional moves to consider.

A starting point for those who are heavily reliant on their 401(k) is to make sure their portfolio reflects their appetite for risk. This is a personal choice because it should be based on how much longer you must work to meet your retirement savings goal and how comfortable you are with losing some of your money.

A key focus in making this assessment is to determine whether you have an appropriate asset allocation. You should have a blend of stocks, bonds, cash investments and other options such as commodities or real estate.

A variety of investments helps lessen risk because different assets generally don’t move up or down at the same time.

The next step is to look within those asset classes to determine whether you’re properly diversified. Diversification enables investors to adjust the risk in their portfolio by including a mix of a certain type of investment – say, large and small company stocks – as well as stocks from foreign and domestic companies.

Ultimately, the more time you have, the more risk you can take. This means you can have more money in stocks because they’re more volatile. The closer you get to retirement, the more you’ll want to shelter from market downturns by putting it in bonds or cash investments.

After review, you may find that you need to rebalance your portfolio. Rebalancing is adjusting how much money you’re putting into each asset class in order to maintain your original targets.

It’s necessary because over time, stocks may grow faster than bonds.

If you initially decided how much risk you were willing to take and chose to make 60 percent of your investments in stocks and 40 percent in bonds, you mayup with a 70/30 or 80/20 mix. This means you’re taking on too much risk.

These ideas put together make up fundamentals of long-term investing. They helped millions of 401(k) investors from losing their shirts in this recession.

“Even in the worst market economy since the Great Depression, people have seen their balances move back up today to where they were before the market crashed in mid-2007,” said Dean Kohmann, vice president of 401(k) plan services at Charles Schwab & Co.

401(k) Tips

The best strategy is to have the appropriate mix of stocks, bonds and cash and to periodically rebalance your investments. You might also want to consider the advice of these experts who say adding commodities or real estate can help diversify and hedge against inflation.

Name: Art Hogan

Title: chief market strategist, Jefferies Asset Management

*Protect against inflation by considering a commodity equity exchange traded fund, such as Jefferies CRB Global Commodity ETF.

*Look at mutual funds with companies in the industrial, materials and energy sectors because they, too, will do well during inflation. Examples include metals, agriculture and energy companies.

Name: Alan Skrainka

Title: chief market strategist, Edward Jones

There are three important things to remember when investing for retirement:

*Hold quality investments.

*Diversify broadly.

*Hold for the long term.

Name: Dean Kohmann:

Title: vice president of 401(k) plan services at Charles Schwab & Co. suggests:

*Consider a target date fund because it automatically rebalances your portfolio based on how close you are to retirement.

*Consider rebalancing your account quarterly rather than once a year if you’re concerned about volatility.

LOAD-DATE: February 5, 2010