Saturday, April 28, 2012
You Being Opting For Safer 401-K Investments?
Studies have indicated that almost no one today has got enough saved in their 401-k account to maintain their standard of living through retirement. Sad though it may be, the era of pensions and affordable health care are over, and no longer can retirees count on a comfortable twenty- to thirty-year retirement complete with Airstream trailer camping, grandchildren and Mai-Tais on the beach. However, there is a point at which it becomes necessary to begin looking more carefully at your 401-k and moving money from the riskier stock-based investments to safer harbors. It's particularly important to consider such reinvestment when it seems that the stock market is at a peak, so that you get the maximum return on your investments. There is a point, almost impossible to predict, at which it is the perfect time to transfer your stock-based investments to safer investments. It involves economic factors, the value of your accounts, and your comfort level with how risky your investments are. For instance, if you are 45 years old, and 75% of your 401-k is positioned in foreign stock to maximize growth, and you have seen significant gains in the portfolio's value over your investment, then you might consider stepping back on your risky investments. Of course, if those investments haven't paid off, and the stock is worth far less than what you paid for it, you'll have to make some tough decisions about where you're going to go from there. Do you sell those risky stocks and cut your losses? Or, do you hold out and wait for the eventual upswing? In today's economy, those decisions are tougher to make than ever, particularly so since there are so many stocks that are only just now beginning to resurface from their historical lows. This is where knowing as much as possible about your investments will pay off. Are the stocks held in good companies with good cash flow that just took collateral damage from the recent economic fallout? If this is the case, as has been the case with auto parts suppliers in light of Japan's Tsunami and the Detroit bailout, you can bet that the parts suppliers will eventually hit their stride again. Look at your portfolio carefully, beginning with its overall value right now. Do you already have enough to get by on once you retire? If you do, and the stock is valued near the top of its historical high price, then it's the perfect time to begin looking at safer investments. You don't have to necessarily put all your money into treasury bills or cash, but consider putting at least half your high-risk stock into low-risk stock such as blue chips or in dividend-producing stock. If you're on the low side of your investment's value, check with a major rating company such as Standard's and Poor to see what they have to say. If they suggest holding or buying, then you can be relatively sure that the stock will eventually regain its value, particularly if you're ten or more years out from retirement. If they suggest selling, though, then getting out while the getting's good should be your goal. Look at stocks that have a “strong buy” recommendation to attempt to regain some of their lost value. So, what is the perfect age to start making safe 401-k changes? Well, it depends. It's whatever age you are when you have enough to feel comfortable retiring on. Like any other stock market question, it is one that you alone can answer when you're ready.