Thursday, October 09, 2008

How To Handle Your 401k During the Financial Crisis

Megan McArdle gives the same advice I would give. Don't look:
Don't look. Seriously, don't look. I have no idea what's going on with any of my equity investments, because that is not short term money that I need to keep my eye on.

If you look you will get upset, and you will be tempted to do something stupid. I can't guarantee that the market won't drop further and you won't regret having held on. But as a general rule, selling into a massive liquidity crisis is a pretty bad idea. Selling in a panic because your assets just dropped 30% is almost certainly a bad idea.

The good news is that while the stock market can take a long time to recover, it historically doesn't actually go down for more than a couple of years.

Yeah, that's not very good news. But unless you're planning to retire right now, my advice remains the same: don't look.
Good advice indeed. I haven't looked at my retirement accounts in several months and probably won't do so again until sometime next year. I could probably count the number of times I have looked since starting school (3 years ago) on one hand. My approach has always been to invest for the long-term. Pick index funds I like and then don't worry about them for 30 years. (Gradually shifting funds from high-risk to low-risk investments as I near retirement.) If the financial crisis isn't over by then, I think I'll have much bigger concerns than retirement account...

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