Here’s a question for you: If you put $5,000 dollars into your 401k plan this year and your employer also puts $5,000 into your 401k plan and over the course of a year your investments lose 40% of their value… assuming all of this, how much would you have lost?
The answer may surprise you. You’ve actually not lost anything – you’re at a gain on your 401k plan at this point. Remember that 401k plans are usually matched by your employer, and quite often dollar for dollar up to a certain percentage. Assuming that the $5,000 you contributed was the maximum that your employer would match you immediately net a 100% return on your money. After all, you put in $5,000 and so did they. Now if that entire amount ($10,000 at this point) lost 40% of its value you’re down to a 401k plan value of $6,000 dollars. All from an initial investment (out of your paycheck) of $5,000.
Guess what that means? Your 401k plan portfolio has still gained 20%. That’s a fantastic return on your money by any standard. Things might be dramatic out there in the world of money, but you have to remember that you are in it for the long run, and with the exception of those who plan on retiring sometime in the next 5 years you ought to maintain your 401k plan investments.
Don’t let the news frighten you, don’t check your investments daily and most of all don’t go looking for bad news without thinking about what good can (and ultimately will) come from the difficulties we are now facing. But most of all don’t sell out of your 401k plan and PLEASE OH PLEASE continue to invest in it. You’re practically guaranteed a positive return, even with negative stock returns in the 30-40% range. After all your employer is likely giving you FREE money, just for taking advantage of their 401k retirement plan.