I am going to take a contrarian view of retirement savings and say that in current market conditions you should think about reducing your 401K contributions to only invest the amount that is needed to get your company match. I am normally a strong proponent of company sponsored 401K and traditional (IRA) retirement plans because of the tax advantages and long term compounding benefits. However in already depressed markets, that are set for further falls in the year ahead, minimizing your 401K contributions may be a smarter investment move overall. Don't believe me? Here's an example using two employees earning $100,000 with different 401K contribution levels, and a look at their returns after one year if the market and the value of their investments fall 30% followed by a rise in the subsequent year.

 

Submitted: Oct 9, 2008    Views: 278    Comments: 2    Likes: 1   


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Comments Received:

Drew
(Unregistered)

Uhhh.....shouldn't you be buying low now and selling higher later???

Posted: Oct 9, 2008

Pete
(Unregistered)

The comments on your Blog are correct. Your example assumes that Person B is able to time the market and get in at the right time when the market starts to go up. History shows us this is a matter of luck.

If an investor needs the cash, they should cut back on 401K contributions. If not, I'd keep investing.

Posted: Oct 10, 2008



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