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.