How To Keep You 401k Plan Afloat In A Struggling Economy
Economists usually tell us that the amount of money that a person is willing to save is dependant on the income that that person earns. But wait, this fraction is not wholly dependant on this, but is partly constant. For unlike consumption which occurs even when one is not earning any money, savings will require that a person covers the basics before he or she ventures into saving the money that he has. It is simply logical.
For this reason, you will indeed find out that there are plenty of people who will think of bringing down their contributions to the 401K plan immediately they sense that their income is coming down. One thing that you however need to know, is that this is definitely not advisable. The main reason why I am saying this is simply because of the fact that contributions to the 401K plan are actually meant to be used for the long term, and not for the short term. As the old adage goes, the value of your investment will be enjoyed long after the price is forgotten. In this article, we are going to delve into the rather difficult task of looking at how one can keep up his contributions even when things are not going on so well.
One thing that you need to know is that as the economy continues to struggle and the price of stocks goes down, there is usually another area that may be performing well. There might be some income from the money market, that may go a long way in offsetting the losses that you are likely ton encounter from the dismal performance in the stock market. Although the 401K plans may have been invested in some stocks, it is extremely important to point out the fact that some of the 401K monies are invested in the money market.
You are not supposed to take out any money from your plan because you will pay taxes on the same, and you will also pay some penalty for the same.
It is therefore recommended that if the economy is struggling, you should ensure that you do not stop your contributions to the plan, and you should definitely not think of withdrawing your funds. However, if your funds are heavily invested in stocks, its advisable that you shift the investment to other less riskier assets such as treasury bonds. This way, you'll not be disappointed at all.
by: David de Souza