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How To Invest 401k for 2010
401k accounts, like all retirement savings accounts, should be invested for the long-term. Buying and selling investments within a 401k on a frequent basis is, all to often, a recipe for disaster. However, if you are looking at how to invest your 401k account for 2010 because of new funds added to your 401k, or old funds being eliminated, or if now is the time to adjust your long-term investment allocation, then this guide to investing your 401k money for 2010 is for you.
Start by reviewing all available investment options in your 401k plan. Many plans offers just a handful of pre-selected mutual funds, while others offer a full gamut of funds which can be invested in. In addition, self-directed retirement accounts are become more popular. These type of retirement accounts offer employees nearly unlimited investment options via an arrangement like having your own online brokerage account.
All 401k plans operate on a "plan-year." This usually coincides with the calendar year for most companies. You can expect a flood of mailings and other information to be distributed regarding your 401k account and the funds within it. Pay particular attention to any mailings or booklets you receive that cover all of the plan's investment options, because these will often provide the easiest way to compare 401k investment options within your plan.
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401k Investment Allocation Plan
Review your 401k account and its balances. Within your 401k plan, some investments will have done well, while others may have done poorly. This does not mean that it is time to sell the lower performing ones in order to buy the higher performing ones. This is called chasing performance, and it is one of the worst kinds of market timing to engage in.
Instead, evaluate your investment options only against the other investment options of the same type. For example, evaluate your Small Cap investment funds that you were invested in during 2009 against the other available small-cap funds that are in your plan. If there is a considerable disparity, consider allocating some dollars away from the underperfomers, but only to other investments of the same time.
Next, review whether or not the overall allocation still makes sense for your personal situation. If you are nearing retirement, you need to make your 401k more conservative. If you still have ten years to retirement or more, now is not the time to get more conservative. Whether the market and the economy recover in 2010, 2011, or 2012, you have the time to wait for it to happen. Getting conservative now, will only cause you to miss out on the returns you need to recover from the massive retirement losses most people suffered in 2008.
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2010 401k Investment Strategy
As mentioned above, long-term focus is the key to successful retirement investing and retirement savings. However, there are some tactical moves that may be useful for the more aggressive investor in 2010. Don't panic and unload your retirement savings into money market accounts that are paying less than 1%.
If you feel that your retirement accounts were invested too aggressively and would like to be more cautious in 2010, make small incremental adjustments to your portfolio consistent with your overall financial plan. You may want to consider do you need a financial planner. This way, your funds won't be sitting on the sidelines when the markets do rise and give you a chance to recover some of your losses.