Many of us have a 401K through our employer. You can have some control over the investments in your 401K; however your selection can be limited. The first thing you should do is obtain a list of all the funds that are currently offered to you and maybe a brief description page that outlines the fund’s investments, such as asset class (large cap, small cap, mid cap or index fund) and any expense ratio involved. It’s important to note that it is not what the fund’s performance has been in the past, but what your current goals and risk level is. Prepare a quick list of a few of your current circumstances, such as:

• What is your current age?
• How much money do you have saved for emergencies?
• When do you plan on retiring or taking the money?
• What do you consider your risk profile to be at: Conservative, Moderate, Aggressive?
• What other investment do you currently hold?
• Are your investments tied to your Company Publicly Traded Stock?
• How much of your monthly contributions are you allocating into the plan? Is it 1%, 2%, 3% or the maximum allowed?
• How long have you had the 401K? 1 year, 5 years, 10 years or more?
• Is there a 401K representative from the plan that could give you advice based on your personal goals?

If you’re close to your retirement age, you may want to have a more conservative mix and diversification strategy. Should the 401K represent over 50% of your investable assets; it’s a good idea to make sure that all of your assets have some sort of game plan.

On the other hand, if you are young and have 15-20 years to go before you retire, you may want to consider a moderate or aggressive mix. Research the stock market history along with the history of your 401K mutual funds. In doing so, you will see various trends over the history of the funds. Over any short period of time, sometimes the funds were down and sometimes they were up. If you look over the long haul, the fund should be positive and in general be in the 10-15% return range.

Right now, many of us have seen our 401K values go down as a result of buying at higher prices for the last few years. As you continue to invest though, you are buying low. When the market does finally recover you will see the gains the stocks you are buying low now go up. Hopefully significantly up. Remember the golden rule of investing: Buy low, Sell high.

Each time you are paid, you are making regular and scheduled contributions to your 401K retirement account. This provides a consistent investment plan that is not market dependent. In some cases you will invest when the market is down and in others when the market is up. The principle here is that at a mean level, when the market trends upwards and so will the average of your investments. They also refer to this as dollar cost averaging.

Asset allocation is one of the most important terms in investing. It is the equivalent of “don’t put all of your eggs in one basket”. Your investments within the funds in your plan should be pretty well diversified, but do not take their word for it. It is very easy to find out what sectors of the market each fund holds. Your 401k may have an online platform that makes it even simpler. You may be able to log on right now and find out exactly where all of the investments are in each of your funds.

If your employer’s plan involves the company stock you may want to consider keeping your exposure to a minimum, absolutely no more than 5% of your overall account. You may have the utmost confidence in your employer, but so did the employees of Enron, WorldCom and most recently Citi Group and Lehman Bros., among other companies who dropped into the abyss. I’m not saying that your company is going to go under, but there is no great benefit I can see to hold a large portion of your retirement money in company stock. Furthermore there are plenty of legal issues that sneak their heads into the mix when company stock is involved. You would be smart to just keep it to a minimum. If they give you free stock or options consider converting it to cash and redistributing that money in to your investment mix.

Most companies match a percentage of what you are willing to contribute. I recommend contributing AT LEAST the minimum that the company will match. It is free money!

Even though this year’s returns do not make up for what was lost last year, if you count the company match, you could be still ahead of the game. Your investments may have lost overall, but throw that “free” company money in the mix, and you’re still up! If you are managing your own retirement accounts, look into all of these variables and make adjustments when you have to.

Overall, the knee jerk reaction for many people is to exit the market due to the current downward trend. The news media and Internet drags every doomsayer out and scares folks into the end of the world scenario. Over the years of investing my clients’ money I have seen several of these events. If I had a nickel for every time I was told the market was going to crash and burn I would be retired already on a beach somewhere drinking a margarita. Over time the market go up, and the markets go down, just stay the course and maintain a long term perspective and not a short term one. Savings accounts, like CDs, and other financial products are geared for short term returns. Stocks and mutual funds are geared for the long term. You can’t make short term decisions on long term investments! Don’t try to time the market either or trade your account. There is always someone at work who claims he’s beating the system in his 401K. This guy knows just enough to be dangerous.

Consider having a Financial Advisor review your 401K account and get a Morningstar report done. The report can give you a good insight to the holdings, performance, risk, and trends. If you would like a review of your 401K plan. Click Here and a member of our staff will contact you and help you with any questions you may have.