Stay the course with your 401K
I learned a huge lesson since the start of the recession in early 2009. No matter what happens to the financial markets, don’t stop contributing to your 401K. In fact, during a downturn and when everyone panics, we should be doing the opposite. Stay calm and invest like there's no tommorrow. The real winners are the ones that goes against the crowd; the non-herd followers. I know many coworkers, friends, and family panicked when the financial market was spiraling out of control. For example, my mother did not feel safe during that time with her investment choices. She invested in mid caps, large caps, and foreign funds. With her balance decreasing daily, she panicked and moved all her money out of these funds and into more stable ones. By her action, I felt she had declared defeat by realizing a loss. Had she left her investments alone until today, she would have been able to recoup most of the negative return during that time.
What have I learned from this? I learn that the following three formulas matter in order to stay the course to a healthy retirement: Savings, Employer contributions, and Prudent investing.
Savings. Continue to invest in your retirement account and ignore the performance of the current market. Don’t stop saving. In fact, save at least 10% if you can or better up to the maximum allowed.
Employer contributions. Take advantage of free money your company has to offer you. If your employer matches 6% to the dollar, try to contribute up to this 6% in order to get the match.
Prudent investing. Keep stashing away cash from each of your paychecks. Stay the course and don't get distracted from all the negative news around you. Retirement money is here to stay and for the long run. 1 to 2 years of bad returns should not have an impact to your retirement approach. Most importantly, remember to diversify and not put all your eggs in one basket. And above all, be patient and give it time so your money can grow.
Loyal financial bee followers, what is your approach to your 401K?