Employer-sponsored retirement plans are more valuable than ever. The money in them accumulates tax deferred until it is withdrawn, and contributions to a 401(k) plan reduce your taxable income.
Conventional wisdom says if you have several years until retirement, you should put the majority of your holdings in stocks. Stocks have historically outperformed other investments over the long term. Of course, past performance does not guarantee future results.
The stock market has the potential to be extremely volatile. Shares, when sold, may be worth more or less than their original cost. Is it a safe place for your retirement money, or should you shift more into a money market fund offering a stable but lower return?
If you’re participating in an employer-sponsored retirement plan, you probably have the option of shifting the money in your plan from one fund to another. Here are several guidelines to help you make this important decision.
Consider Keeping a Portion in Stocks
In spite of its volatility, the stock market may still be an appropriate place for your investment dollars, particularly over the long term. Since most retirement plans are funded by automatic payroll deductions, they achieve a concept known as dollar-cost averaging. Dollar-cost averaging can take some of the sting out of a descending market.
Dollar-cost averaging does not ensure a profit or prevent a loss. Such plans involve continuous investments in securities regardless of the fluctuating prices of such securities. You should consider your financial ability to continue making purchases through periods of low price levels.
Spreading your holdings among several different investments (stocks, bonds, etc.) may lessen your potential loss in any one investment. Do the same for the assets in your retirement plan. Keep in mind that diversification does not guarantee a profit or protect against loss; it is a method to help manage investment risk.
Find Out About the Guaranteed Interest Contract
A guaranteed interest contract offers a set rate of return for a specific time period, and it is typically backed by an insurance company. Generally, these contracts are very safe, but they still depend on the financial strength of the company that issues them.
If you’re worried, take a look at the company’s rating. The four main insurance company rating agencies are A.M. Best, Moody’s, Standard & Poor’s, and Fitch Ratings.
Periodically Review Your Plan’s Performance
You are likely to have chances to shift assets from one fund to another. Use these opportunities to review your plan’s performance.
The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2021 Broadridge Financial Solutions, Inc.