Stop 401K Investment Losses

Fear and panic are gripping the stock market. Americans have watched in horror as their 401K retirement investments in mutual funds toppled 20-30-40 percent. Investors may never get all that money back, but there are ways to stop 401K investment losses. Unfortunately, many 401K fund advisors and stock brokers won't tell you about them. Why? They make more money if you stay invested in mutual funds and equities. The way to stop your 401K investment losses can be summed up in a single four-letter word - cash.

When the stock market was serving up double-digit gains, working Americans were led to believe that investing for our retirement meant always investing in stocks, bonds, and stock market mutual funds. Holding cash in low yielding savings accounts, money market funds, or certificates of deposit was discouraged. "Don't let your money sit idle," financial advisors said. It wasn't necessarily bad advice at the time, but today it is. Now that stock market losses are in the double-digits, earning 4.5% on a certificate of deposit is infinitely sensible and cash is king.

The fact is, cash has always been the most valuable asset for any investor. Most of us don't understand just how valuable it is until we are facing a financial disaster. Typically, financial fund advisors and stock brokers are giving shell-shocked investors vague and useless advice to "stay the course." If that means remaining 100% invested in bond funds, mutual funds and stocks, take my advice and find a better investment advisor. If your present advisor isn't talking to you about cash investments, you can be sure they are not looking out for you. They are only looking out for themselves.

One way to stop 401K investment losses is to follow the lead of the big boys in the investment world. Move a majority of your investments to cash. Depending upon how close you are to retirement, consider putting 50-70% of your money in money market funds, certificates of deposit, or government insured securities. If you choose to remain partially invested in the stock market, choose medium to low risk mutual funds paying a stable rate of return. Continue to invest enough money in your 401K to take full advantage of your company's contributions. Don't forget to change your future investment elections, however, to reflect your new strategy of putting 50-70% of future investments into cash and the balance into the lower risk equity funds.

If your 401K fund management company doesn't offer cash investments as a part of the plan, you may wish to consider an outright cash withdrawal. This plan is worth consideration if you are heavily burdened with high interest debt.

Say, for example, that you owe $25,000 in credit card debt and you are paying 22-28% interest. Instead of investing $25,000 in a CD that pays 4% interest, paying off those high interest credit cards immediately nets you a 22-28% annual return on that money in interest savings alone. Sure, Uncle Sam will take 20% of your money as a tax pre-payment, but consider this. As it stands right now, there are no guarantees that you won't lose another 20% of your 401K investment, anyway, just by doing nothing at all. Whether you pay it in taxes or watch it evaporate in another stock market plunge, the money is still gone. How much better will your day-to-day life be without that credit card debt weighing you down? It's something to think about.

And, while you are thinking about that, think about setting up a Roth IRA to invest those saved credit card payments for your future retirement. Money invested under the Roth IRA plan is tax free when you begin withdrawals in retirement. You are allowed to save $5,000 - $6,000 per year under a self-directed Roth IRA investment plan. The beauty of the Roth plan is that your investment is always available for you to use for whatever reason you choose. So long as the interest remains untouched until retirement, you will never pay taxes on those funds. Be sure to ask your financial advisor or financial institution for details.

You can stop the losses on your 401K retirement investments. You do have options. All you need now is to find an investment advisor willing to explain those options, crunch the numbers, and help you set a plan that makes sense in this dicey economy. Start working on that plan today for a more secure tomorrow. Last, but not least, embrace the idea that "cash is king." You can thank me later.