Tips for Protecting Your 401K During a Recession

If you’re one of the millions of people with a 401k account during tough economic times, you may have considered withdrawing funds or reducing your monthly contributions just to stay ahead of the financial game. Unfortunately, both of these strategies can work against you when you trying to maximize your funds.

Even when the Dow Jones Industrial Average drops and the economic climate is looking bleak, it is in your best interest to continue making the largest contributions possible to your 401k account and do whatever it takes to protect your investment. Here are some important tips for protecting your 401k during a recession:

1. Keep on contributing. The people who remain invested will generate the biggest returns in the long-term, according to the financial experts. Even when money is tight, make a habit of contributing as much as possible towards your 401k so that you can keep building your account. Even when the economy is experiencing a financial meltdown, you can secure your tax-free contributions and look forward to a high return on investment during your retirement.

2. Consider diversifying your portfolio. Even though you want to keep things steady during the rough economy, you also want to take the time to assess your risk tolerance and consider diversifying your portfolio for a better return. If you are comfortable with changing your lineup of accounts and investing in funds that will generate a higher return, don’t be afraid to do so. Sit down with a financial advisor and revisit your accounts to see what your options are.

3. Keep buying even when the market’s going down. One of the key principals of investing is to buy when prices are low, and during an economic recession, you can find record-low prices. If you are in a position to do so, consider investing more than usual to reap greater rewards when the market recovers. This can put you in a position to look forward to a healthier savings account that can reach up to 15% savings rates on your income.

4. Don’t cash out your entire account. One of the worst things you can do during a recession is to cash out your account entirely. If you do this before your retirement age, you will be paying high penalties and will also be paying taxes on the total value of the account. Do whatever you can to keep your account in good standing so that you don’t have to pay high penalties and fees.

5. Ask your employer for assistance. Some employers provide investment advice free of charge to their employees. Get some professional advice for managing your account so that you can earn the highest possible annual returns.

Tags: 401k, 401k tips, retirement planning