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Consumer Archive

Consumer

Dont stop feeding your 401k

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NEW YORK (2/18/08)--Given recent economic woes and volatility in the stock market, it may be tempting to stop contributing to your company-sponsored retirement plan until the outlook is brighter. But experts agree that’s not the route to take (CNNMoney.com Feb. 4). If you invest based on emotions, you’re almost sure to lose money. To make money on investments, you need to buy when the price is low and sell when the price is high. So pulling the plug on your 401(k) now--when many investments aren’t doing so well--is like walking away from a sale. Historically, stocks have proved to be the best hedge against inflation. And given the Rule of 72 (72 divided by your yield is how many years it takes your money to double), a modest return of 6% still means your money will double in 12 years. What’s a nervous investor to do these days? Invest more, not less, and here’s why. Annual 401(k) contributions of $7,200 at 6% will accumulate to $100,000 just as quickly as contributions of $5,000 at 12%, but your odds of getting 12% returns anytime soon are dwindling (CNNMoney.com Feb. 5). If you’re taking advantage of your employer’s 401(k) plan, consider bumping up your contribution even one percentage point--you probably won’t notice much difference in your paycheck. If you’re among the 22% of eligible employees who don’t participate in a 401(k) plan, start now. Besides building up retirement savings, the tax advantages can’t be beat. If your paycheck is $1,000 and you contribute 5% ($50), you’ll only be taxed on $950.