Photo courtesy of Flickr, available under a Creative Commons Attribution-Noncommercial license

Photo courtesy of Flickr, available under a Creative Commons Attribution-Noncommercial license

By Brian McKay

As has previously been mentioned on zenruption, your 401(k) is a complete scam that props up markets, saves your company the cost of providing the safety of a pension and makes the fund managers billions off of the high fees they are charging you. You need something for retirement though and this is the best option to avoid taxes on gains at that time.

There are three things you should do right now, if you already aren’t doing them.

Max out your contribution that to what your company will match. If your employer matches up to 5 or 6 percent, take it. Invest no more than that though. The matching portion is 100% return and regardless of what the markets do or how much the fund managers charge in fees, it’s a good deal. The thing is that the markets would have to fall to zero, zip, nada to negate the money you have made on matching.

Take a loan from your 401(k) and pay off debt. Did you know you can borrow against your 401(k)? You can. If it isn’t producing a return, which right now is very doubtful, then use it to save money. Those credit cards are charging you interest of 18 percent or more. That is insane! Why not save what your 401(k) isn’t producing? Take a loan and pay yourself 5 percent interest.  It’s the cheapest loan you’ll get anywhere, the interest is actually paid back to yourself and no credit check or application is required. Do it now!

Diversify your 401(k) immediately. The markets simply suck right now. Actually they have been pure shit. All of the volatility is great if you’re an accomplished trader. You probably aren’t and, honestly, one must question if 95 percent of those guys on Wall Street are accomplished traders. So basically, your money is stuck because you can’t get out without a huge tax penalty during a rough period in which stocks tend to decline. Sometimes the best strategy you have is to loose less. Many employees have a disproportionate amount of money in their own company’s stock. Don’t. Just don’t. Promise.

Right now move money into lower risk funds and bonds, bonds, bonds. Often when markets are declining bonds will actually become more valuable as investors flee to safety. If you don’t have 20 – 40 percent of your 401(k) in a high quality bond fund now, make it happen right away.

There isn’t much more you can do with your 401(k)… ever. When markets start to normalize zenruption will be a source to tell you where your 401(k) funds need to go. We promise.

Feature image courtesy of Flickr,  available under a Creative Commons Attribution-Noncommercial license

 Brian McKay is a co-founder of zenruption. He is dedicated to helping the average person navigate a financial system that is stacked against them. He loves IPA's and really needs to get back to the gym. Really.