1.23.2008

Your 401(k) during recessions…

Since stocks are steadily decreasing, it is natural for your 401(k) to decrease too. Some people look at this and think “Why am I even putting money in here? It’s just vanishing! I could put it in a high-yield savings account and make more!”

Well, those people are wrong.

Say you put in about $100 a month. This is pre-tax money, so they only took about $80 out of your check. You are already up 20%. Then if your company matches…say 50%, you’re up to $150 for the cost of only $80! That is an 87.5% return! Try making that in a savings account.

Here’s a little chart for $100 monthly investment that assumes you will loose 4% in your 401(k) and gain 4% in a high-yield savings account:
If you stopped contributing to your 401(k) and put it in a savings account, you’d be down $730! Even if your company doesn't match, you'd still be down over $150.

That being said, you should take a look at your 401(k) and see where your money is going. I would probably move some of it to a more conservative fund or to some bonds during the recession. You won’t want all of your money in high-risk stocks this year.

5 comments:

Courtney said...

Oh man. I'm trying not to look at the 401K... more like pretending that it's not going backwards.

Marjorie J. said...

Thank you for sharing this information.This is such a great article fidelity 401k .

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