TheLoop21.com

By: Devona Walker (Add to your loop)
Thu, 02/12/2009 - 01:00

Your investment is shrinking. How do you save it?

It's hard to get good advice about what to do with your 401(k) in tough economic times. (Read more about 401(k)s.)

These 401(k) programs are administered by companies who have a vested interest in high-risk investing. They are not required to inform workers about fees they accrue, and they have no incentive to guide consumers to safer stocks. In addition, they do not typically notify workers when their 401(k)s have taken a massive hit — like millions undoubtedly have in the last eight months.

What’s worse is the degree of self-serving advice we get. From the likes of Jim Cramer to Fidelity Investments Inc. — the nation’s leading provider of workplace retirement savings plans — these folks are always bullish. Every down day, in their eyes, is a buying opportunity.

Here is the part that really bites. At this point, the best you can do with your 401(k) is mitigate your losses and rebalance your contributions into the most conservative portfolio possible, said Teresa Ghilarducci, an economics professor at the New School for Social Research.

“You reduce consumption in other ways. But you keep your money in a retirement plan. I would suggest government bonds,” she added.

Richard Kaplan, an elder law professor at the University of Illinois, also said workers should look for low-yield, low-fee index bonds. One thing he said is important to note is that workers do not have to play the stock market to invest in a 401(k).

“For many people, 401(k)s and the stock market are correlated. They don’t have to be correlated,” Kaplan said. “The bottom line is ‘Do you think the stock market is a reasonable place to invest, or is it a casino? People should not gamble money they can’t afford to lose.”

Devona Walker is The Loop's senior reporter/blogger. She writes the Post-Race? blog.