With the market decline over the past 18 months, you may be wondering if it’s time to put the brakes on your 401(k) contributions. If your dwindling account balance has you down, you’re not alone. When the stock market hit its apparent low in March, some accounts had declined over 50 percent.

It may take years to recover these losses. What you should do in the meantime depends largely on your age and retirement goals. For plan participants in the 20- to 30-year-old range, the down market is a buying opportunity, since they have plenty of decades until retirement. Conversely, for employees with 20 to 30 years on the job who are closing in on retirement, steep 401(k) losses may mean delaying retirement by a year or two. 

• Consider rebalancing. Over time, all portfolios become unbalanced. However, serious market declines can result in more dramatic portfolio swings. In normal conditions, annual rebalancing is enough, but with the market’s recent swoon more immediate attention is required. As you look at your portfolio, it’s also important in this volatile market to assess whether your current risk level is still necessary to achieve your goals. Of course, the beauty of making portfolio changes in a 401(k) plan is that they are free of tax consequences.

• Check your diversification. Spreading your portfolio across multiple asset classes may help reduce volatility and potentially can increase returns over time. When the stock market is booming, investors tend to overweight stocks. Balance is the key.

• Get the match. The 401(k) plan gives workers saving for retirement a tax break at contribution time and potential for tax-deferred growth. If your company still offers matching funds, make sure you contribute enough to claim your share. If you don’t, you’re leaving free money on the table.

• Keep investing. By investing a set amount each pay period in your 401(k) retirement account, you practice a successful investment strategy called dollar-cost averaging. Your contribution buys fewer shares when the market is up and more shares when the markets are down, resulting in a lower average cost per share over time. Even with the recent upswing in the market, we are still way below the 2007 high. Good buys are still available.

• Adjust your timeline. Your 401(k) account may have taken a serious hit, but remember that you are planning and saving for a lifetime, not just a retirement date. That is, although you may retire at age 65, that’s not the end date for portfolio growth. Your retirement account may need to last until you’re 90 or older. With that longer investment horizon, the downturn can seem easier to overcome. Investing for retirement security is a long-term endeavor.

Notable Quote: “I finally know what distinguishes humans from other beasts: financial worries.” — Jules Renard.

Contact Tom at 1030 Seminary St. Ste. D, Napa CA 94559, 254-0155, fax 254-0158 or e-mail suntrm@aol.com.