Maggie Rodriguez of the CBS Early Show and I discussed how to proactively re-boot your 401 (k) by following some rational steps.
The core lesson to be learned from a bear market is to understand what kind of investor you were during the depths of the lows. Here are three categories to consider:
1) SLEPT LIKE A BABY
* Portfolio was less than 30% invested in risky assets, like stocks or real estate OR
* You had more than 20 years before you needed the money OR
* You were oblivious and/or in denial
2) RESTLESS SLEEPER
* Portfolio had approximately 50% in risky assets OR
* 10-15 years before you needed the money OR
* You knew you should be doing something, but didn't know what to do
* Portfolio had more than 70% in risky assets OR
* Less than 10 years before you needed the money OR
* Believed that the Great Depression was coming
Once you have done this, hop on the web and take a risk assessment test. After last year, you'll most certainly know the answer to the question, "How would you feel if your portfolio fell 20% in a single year?" While you're at it, figure out how much you need to save for retirement.
With that information in hand, here are some general guidelines for reallocating your money.
* > 30 years: 50-70% risky assets
* > 20 years: 40-60% risky assets
* 5-15 years: 30-40% risky assets
MEDIUM RISK TAKER
* > 30 years: 40-60% risky assets
* > 20 years: 5-30% risky assets
* 5-15 years: 0-30% risky assets
HAD TOO MUCH RISK–NEED TO SLEEP!
* Reduce risk by at least half, maybe more
* Don't chase the market higher
* Save More
Finally, with all of the talk about asset allocation, there are three ways to impact your retirement savings:
1. Save more money-401(k) limit this year = $16,500 + $5,500 if > 50
2. Spend less in retirement years
3. Work longer-this has the most significant impact on retirement savings
Continue on moneywatch.com