I was talking to one of my friends/coworkers about the economy the other day, and we got onto the topic of our 401(k)s. He asked if I had checked my 401(k) lately, and like most of us who are invested in the stock market, the answer was yes.
Then he proceeded to ask if I had changed my 401(k) contribution because of the struggling economy, and this is where our philosophies clashed. Our reactions to the falling stock market have been in equal, but opposite directions.
My friend reduced his 401(k) contribution to 5%. I like to call this a rookie mistake. He’s discouraged because his investments have been going down instead of up, so it feels like he’s throwing away his money. It seems like it would make sense to the lower the contribution until the economy gets better, but what he doesn’t realize is that he’s passing up a good deal on stocks while they’re at lower prices. At least he’s not completely stopping his contribution.
I increased my 401(k) contribution to 10%. With my retirement over 30 years away, I can safely assume that the market will recover and continue to grow by then. By increasing my contribution while the market is down, I’m getting more shares for my money. While I may be losing more money than my friend right now, I’ll gain more in the long run after the market turns around. I won’t be using this money until retirement anyway, so I don’t need to worry about what’s happening to it right now.
What adjustments have you made to your 401(k) in this struggling economy?