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How to Recession-Proof Your 401k Bookmark

Did your 401K take a beating in the bloodbath that was 2008? If so, don't feel that you are alone, the bulk of the investment world lost their shirts during the 08 calendar year. But, here's the important part. You didn't HAVE to lose any money. In fact, here's something

Did your 401K take a beating in the bloodbath that was 2008? If so, don't feel that you are alone, the bulk of the investment world lost their shirts during the 08 calendar year. But, here's the important part. You didn't HAVE to lose any money. In fact, here's something that very few can say, and yes we say it proudly.

Our 401K has never lost a penny. We have never had a down year. Sure, we've been pretty flat sometimes, like in 08, where we only gained a measly 3%. But rest assured that's a lot better than losing 25, 30, 45, 55%.

Here is the problem I see in most 401Ks

I've done a lot of studies on this and what I've found is very disturbing. The average person that starts a 401K plan does so like this:

The company announces that the employee is finally eligible to join the plan. So, the employee sits with the human resources person and reviews the material. In general, a normal 401K plan will have a "family" of stock funds, some bond funds, and some money market funds ( which we consider "cash") that they can split their contributions up into. They talk about their goals and then they make their selections as to how their contributions will be split into the various funds. Then, they walk away.

Forever.

That's right. For the most part 85% of the people I've been able to study simply take the Ron Popeil method which is to "set it and forget it". Well nothing could be more detrimental to your well being than doing that. What that means is this; if the market goes up, you're probably doing well. When the market falls, you're falling with it. If you had done the "set it and forget it" back in 2000, here you are 9 years later and you're probably negative overall. This is a travesty.

Here is the plan for properly managing your 401K

Despite the pure B. S. that Wall Street spews every day, buy and hold is long dead. We said it back in 99 and we'll say it again today. Buy and hold is a suckers play, designed to only benefit the fund managers. When stocks go up, doesn't it make sense to be in them? Sure it does. But when stocks go down, does it still make sense? Of course not. Yet just 15% of the people will actively move their money around in the 401K. Why is that?

Some don't know how to do it.
Some are told you can't do it
Some are told you can't time the market
Some are told it's best to leave it alone
Some are told that it's all about the long term
Etc. Etc.

First let me tell you all this. The only person who is really going to give a rats behind about you and your money is, well, you. So, if you don't take an active role in taking charge of your 401K, no one else will. This is the single most important thing I can tell you all. YOU HAVE TO TAKE A HANDS ON APPROACH TO YOUR RETIREMENT FUNDING.

Let's first understand what this is all about.  Your company's "plan" will as I said have a handful of stock funds, some bond funds and some money market funds that you can elect to place your weekly contributions into. So, lets suppose you decide that you want to maximize your gains, although that's the most risky and you place 25% of your money to go into the "Future 500" fund which is supposed to be some form of growth fund, and 25% in the "new century go like hell fund" which is supposed to flesh out the best hot prospects for the new age, and the other 50% in a balanced "Global fund" which they tell you seeks out the best emerging market opportunities.

So, you make your selections and go about your business. If the market is hot, like it  was from say late 05 through November of 07, Chances are you made a lot of returns. Great returns. You were doing very well for yourself. But, then trouble began. The market had run wild for almost 2 years. It was time for all the excesses to be purged. In a matter of months, stocks were heading lower and your quarterly statements started showing losses. Soon, you went from being up wonderfully, to being down 40%. Ouch.

Did you go online, or call the plan manager and move money out of stocks? Probably not. Did you make a few clicks and move money from stock funds into cash and bond funds? Probably not. Why? Because you've been brainwashed to be in it for the long run. That you can't time the market. That it's best to just "sit". it's all Hogwash.

It's incredibly easy to move your money around in a 401K. A phone call or a click of the mouse allows you to move any percent of your contributions from one fund to another, or from one type fund ( say stocks) into another form ( say bonds) . The moment you do, it will stop the bleeding. It might even pan out to be profitable. Just remember this, most 401K's don't have any type of "short funds" where you can make gains while the market is falling,  so the best you can usually do is hide in safety in a falling market.

But isn't it better to be in "cash" making almost nothing, than to watch your money disappear?? We think so.

So, here's our philosophy. We won't catch all the gains in a bull market, because we make the market prove itself to us before we move into aggressive stock funds. We miss some of the move. But, we also leave the stock market once it's pretty clear that the ultimate direction is going to be down for a considerable period of time. By just doing that, we've averaged better than 12% a year, since the mid 90's.

This doesn't take a lot of time folks. We are talking about ten minutes a week, if that. You don't "daytrade" your 401k, it's not designed for that. But, by making bi weekly or monthly adjustments, you very much can maximize your gains and minimize your losses.

You can do this too. A lot of people will be able to post good gains just by reading our free investment newsletter. But for those of you who wish to follow along with us, joining our Insiders club is probably the single wisest investment you'll make all year. For just 249.95 per year, we'll tell you in real time when we are moving money around in our 401K, what stocks we might be buying or shorting in our trading account, and what alternative investments we might be moving into.

 

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