Do you have any rich relatives or friends? If one of them were to call you up and tell you that if you invest your money in a mutual fund that they would match dollar-for-dollar up to 5% of your investment amount, would you turn them down? I would hope not. Unfortunately this is exactly the sort of thing that I see my friends and associates doing quite frequently. Of course I’m not referring to my best friends rich Uncle, but rather his employers’ 401-k, and their matching funds policy!

So on that note, here’s a question for you: If you put $5,000 dollars in your 401-k this year and your employer also puts $5,000 into your 401-k and over the course of a year your investments lose 40% of their value… assuming all of this, how much would you have lost?

The answer may surprise you. You’ve actually not lost anything - you’re at a gain on your Investing at this point. Remember that 401-k are usually matched by your employer, and quite often dollar for dollar up to a certain percentage. Assuming that the $5,000 you contributed was the maximum that your employer would match you immediately net a 100% return on your money. After all, you put in $5,000 and so did they. Now if that entire amount ($10,000 at this point) lost 40% of its value you’re down to a 401-k value of $6,000 dollars. All from an initial investment (out of your paycheck) of $5,000.

Guess what that means? Your 401-k portfolio has still gained 20%. That’s a great return on your money by any standard. Things might be dramatic out there in the world of money, but you have to remember that you are in it for the long run, and with the exception of those who plan on retiring sometime in the next 5 years you ought to maintain your 401-k.

Don’t let the news frighten you, don’t check your investments daily and most of all don’t go looking for bad news without thinking about what good can (and ultimately will) come from the difficulties we are now facing. But most of all don’t sell out of your 401-k and PLEASE OH PLEASE continue to invest in it. You’re practically guaranteed a positive return, even with negative stock returns in the 30-40% range. After all your employer is likely giving you FREE money, just for taking advantage of their 401-k.

Here are four more reasons why you should plan to do your own Retirement Planning

  1. The markets average around 10% a year over the long run
  2. Economic worries are dragging down the market, but these will fade eventually
  3. A general rule of thumb is to buy low sell high - by buying in small lots over time you will accomplish the act of buying low
  4. Buying now will increase your long-term returns