Is Your 401(k) Recession-Proof? | Phil Town | Summary and Q&A

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October 31, 2019
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Rule #1 Investing
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Is Your 401(k) Recession-Proof? | Phil Town

TL;DR

During a recession, it is important to lower contributions to a 401k, diversify investments outside of a 401k, and take advantage of the opportunity to buy great companies at bargain prices.

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Questions & Answers

Q: Should you lower your contribution to a 401k during a recession?

Yes, it is advisable to lower contributions if you are already contributing more than your employer matches to avoid high fees and limitations on investment options. Investing in alternative retirement accounts like IRAs or self-directed accounts may offer more control and potentially higher returns.

Q: Should you cash out of your 401k during a recession?

No, cashing out of retirement accounts during a recession is not recommended. Panic-selling during market drops can result in significant losses. Instead, it is advisable to stay invested and consider buying great companies at bargain prices during a recession.

Q: Is it advisable to continue contributing to your retirement accounts during a recession?

Yes, you should continue contributing to your retirement accounts during a recession. Although the market may experience fluctuations, recessions also present opportunities to invest at lower prices. Consistently saving and investing can lead to long-term growth.

Q: Should you look at your account balances during a recession?

If you are not considering moving to a money market account, it is best to avoid constantly checking your account balances during a recession. Fluctuations in the market can be unnerving, but it is important to stay focused on long-term goals and not make impulsive decisions based on short-term market movements.

Summary & Key Takeaways

  • The US economy is at the edge of a recession, making it crucial to protect your 401k and yourself during this time.

  • Lowering contributions to a 401k is advisable if you are already contributing more than your employer matches to avoid high fees and over diversification.

  • Investing in a self-directed retirement account or IRA allows you to choose investments that align with your values and potentially offer higher returns compared to a 401k.

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