401(k)s & IRAs

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Chicken Little was right. The sky was falling for most retirement accounts in 2008. But that doesn’t mean Little, lead character in a fable about a chicken who believes the sky is falling, should become one of your most trusted financial advisers.

While the average 401(k) and IRA tanked 20 percent in 2008, short-sighted investment decisions based on the losses may only serve to make matters worse, experts say. By shifting some of your retirement money away from stocks in a reaction to the declines, you could be cheating yourself out of the gains from a rebound that is almost certain to occur in the years ahead, says Jason Tyler, senior vice president for Chicago-based Ariel Investments, one of the country’s largest Black-owned financial management firms.

“The last thing people should do is pull money out of the stock market. Stocks will still do well in the long run,” says Tyler. He recommends people who have just started working should be investing everything they can into their 401(k) plans, with a strong emphasis on stocks and stock mutual funds.

Older workers who will need to tap into their investments relatively soon to fund college tuition or retirement expenses should turn to a different investment strategy, according to the Ariel executive. He says they should start moving to cash and bonds.

Stocks and stock mutual funds are very attractive for new investments for retirement accounts in spite of the recent turbulence, Tyler says. “All the smart investors are saying this is the best buying opportunity in the market in decades. A lot of health-care companies are safe. High-quality consumer product companies are safe,” he says.

The investment adviser notes that Blacks tend to be underinvested in 401(k) plans compared to their white counterparts in part because investing in the stock market isn’t a dinner-table conversation in Black households. He calls the 401(k) gap a crisis in the making that could leave many Black workers with inadequate funds for their retirement.

“This is a great time to increase contributions, to take full advantage of any contributions your company does. We consider matching dollars to be free money and we definitely don’t want to see anybody passing up on that,” Tyler says.

With the 401(k) and IRA stock market losses last year, some people very close to retirement age — two to three years away, say — are going to have to work a little bit longer, he says. But he doubts that people younger than that will have to plan on working longer due to the losses because of the market’s long-term likely upswings.

Jim Young, president and CEO of Citizens Trust Bank in Atlanta, says it could be 2011 before investors see any recovery of their 2008 losses. And while three years of seeing poor, often negative returns on your retirement investments may be frightening, he has two words for investors: prudence and patience.

“If you waited this long to get out, you have incurred significant losses. By liquidating those investment vehicles, you are insuring loss. My recommendation is wait and hope for a recovery. We have always known the economy is cyclical and at some point it will return,” Young says.

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