Stock Markets Exposed

should i lower my 401k deductions with the bad news from the stock market lately?

Public Comments

1. It doesnt matter what the economy is doing. What matters is your own personal situation and your risk tolerance. That should determine your 401k contributions and allocation. The further away from your retirement you are the more risk you are able to take. A 401k is a long term investment. Dont invest for the long term with a short term perspective.
2. When you go to the mall and find that the item you want is on sale, do you say, hmmm, no, maybe I should come back later when it's priced higher? On the other hand, if you like to buy things that are on sale, why would you not buy stocks when they go on sale?
3. Short answer = No. The first two posters are correct - 401(k)s are long term investments and generally shouldn't be significantly changed based solely on market conditions - what's most important is your time horizon. The longer your time horizon, the more risk you can afford to take. Additionally, it may make sense (again, based on your time to retirement) to increase your deduction, if anything, as the market goes down. This gets you more shares at a lower price. As the market reverts towards it's mean, you'll do well. Finally, if you're really concerned about the market gyrations, and losing sleep over it (you have a low risk tolerance), consider keeping your deduction the same, but shifting the funds to which you're allocating. Most 401(k)s have a cash fund or it's equivalent into which you can park money until you're ready to re-enter the market. This gives you all the tax advantages of your deductions without the market exposure.
4. No. 401k is a long term investment and you usually get an immediate profit/match from your company. Stocks are getting historically cheap now as well. If you can afford to invest in your 401k, you definitely should. You aren't going to do better long term in a savings account or a cd.
5. No. Never lower your 401k deductions. If you feel so queasy about the stock market, just try to diversify your investments across a broad class of stocks and bonds. Or keep stocks only to 30 - 40% of your portfolio.