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Don't Let 401(k) Losses Dim Your Retirement Picture

According to a study released earlier this year by Boston-based Cerulli Associates, total 401(k) plan assets shrank last year for the first time in their 20-year history. In fact, the average 401(k) account balance fell more than 11 percent in 2000. (sources: Cerulli Associates, Market Update: The 401(k) Industry, May, 2001; Nasdaq press release, Jan. 23, 2001).

If you’re one of the millions of Americans who has money invested in a 401(k) or similar retirement plan, it’s important to remember that employer-sponsored retirement plans can still be an excellent strategy for retirement savers. Consider some of the following points to help protect your retirement plan from market volatility.

Diversify Your Retirement Plan

A survey by Hewitt Associates, an employee benefits consulting company, found that, while the average 401(k) plan offers 11 different investment options, more than one-third of retirement plan participants keep all of their money in a single investment option, an additional 19 percent of plan participants split their money between just two investment options.

Keeping all of your money concentrated in one or two investment options can mean that you may not be prepared for the full range of market conditions, while spreading your investment dollars among multiple assets and asset classes can help strike a balance between risk and return.

To avoid total reliance on your retirement plan, it is often important to have other savings outside of a tax-deferred qualified plan. Many employers now offer separate after-tax savings programs to make this convenient and easy.

Be sure that your investments outside of your plan are appropriately diversified – by becoming acquainted with how each investment option is allocated.

Focus on the Long-Term

As you watch the performance of your investments, it’s important to remember that the stock market has always seen up and down trends, but the long-term trend has been one of growth. While past performance is no guarantee of future investment results, the stock market has historically bounced back from every major market downturn. (Source: Dow Jones Web site, historical data.)

Rely on a Professional Advisor

To better understand how retirement planning fits into your overall financial picture, consider visiting a professional financial advisor.

November 8, 2001

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