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Don't bail on your 401(k) yet

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Mike DuPre'
September 17, 2008
— It was tough getting a hold of a securities broker Tuesday afternoon.

Something about a huge sell-off in the stock markets, Wall Street in turmoil, banks in trouble—all making small, private investors nervous and anxious to talk to their brokers.


Many private investors have large stakes in 401(k) retirement funds. Some peg their retirement and future lifestyles to the money in their 401(k) accounts.


So what to do? Bail out of your 401(k)? Sit tight?


The Janesville Gazette asked Frank Perrotto, financial adviser and president of Financial Consulting Group of Janesville, some basic questions:


Q: How bad was Monday's 504-point loss in the Dow Jones Industrial Average?


A: "As bad as I have seen, perhaps since 9/11. Yesterday's decline basically matched what happened after 9/11. But if you take out financials (stocks of financial companies such as investment banks), everything else is fine."


Perrotto doesn't see stabilization among financial stocks for a while. Because financial stocks are such a key part of the markets, sharp declines in them will continue to play havoc with stock markets, he said.


Q: Should I bail out of my 401(k)?


A: "No. I have received a plethora of phone calls. No. Absolutely stay the course. Armageddon is not around the corner."


Q: Should I keep contributing to my 401(k)?


A: "Keep adding to your position because everything is on sale now (because of the drop in stock prices). People in 401(k)s will come back faster. If you haven't moved (assets) by now, you'll do what a lot of people do: Buy high and sell low."


If you are within five to seven years of retirement and have either not diversified your 401(k) or are staying in aggressive, growth-oriented mutual funds or stocks "you're paying the price right now."


Q: Is there a safe haven for my money?


A: "If you want a safe haven, put your money in a money market account within your 401(k), but you'll give up upside potential in the long run."


If your strategy is to preserve what you have and the market's volatility and downward trend make you too anxious, consider diversification. Sit down with a financial adviser and talk about spreading your investments among many securities and/or mutual funds.


Q: When will the markets bottom out?


A: "I don't think that anyone can predict that with any certainty. I look for some more bank failures in the short run. No one has been able to time the market on a consistent basis."


And that's the reason not to move your investments or contributions into ostensibly safer securities or accounts—because no one can accurately predict the markets' bottom, you'll miss their rebound.



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