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401k: Stay the course
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September 21, 2001: 5:53 p.m. ET
Your instinct may be to run and hide from the market. Don't, experts say.
By Staff Writer Jeanne Sahadi
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NEW YORK (CNNfn) - Investors are scared. A friend of mine -- one who's been a steadfast saver and investor for years -- called this week, asking whether it's time to stop contributing to her retirement plan. And she's got some 30 years to go before retiring.
My friend's concerns no doubt echo what a lot of people have been thinking: After a week when the Dow lost 14.3 percent of its value – its worst week since May 1940 -- why not just hang onto our hard-earned dollars until things calm down a bit?
No financial expert discounts just how hard the market turmoil has been for investors, especially those who have never lived through a steep downturn. And no one pretends to know when it will end.
But most experts are confident it will end – some think sooner rather than later -- and they advise investors not to miss out on the upturn. "The trick is staying in the game. If you opt out, you lose," says certified financial planner Mari Adam.
Emergency fund first
In fact, the only reason not to contribute to your retirement plan now is if you don't have an emergency fund worth three to six months of living expenses. "Access to cash is paramount now. It's absolutely critical," Adam says, noting that unemployment is increasingly a concern.
If your emergency money is in place, the priority should be to continue saving for your future, especially if you get a tax deduction and a company match for your retirement contributions, said CFP Barbara Steinmetz.
Most planners also recommend sticking with the asset allocation you had before Sept. 11, assuming it was appropriate to your age and goals. (Use our asset allocation tool to see if you have the right mix of stocks, bonds and cash.)
But if you're still too queasy throw money into your more aggressive funds, then direct your new contributions to a more secure type of investment, such as a bond fund, a balanced fund, a stable value fund or a real estate fund. "A fear of further losses wouldn't stop me from contributing to a 401(k). It's just where I would put it," Steinmetz said.
The opportunity to buy low is here, planners say. "If you've got 20-plus years to retirement, you should be sinking every dollar you can on a monthly basis," says CFP Doug Flynn. "We're looking at 1998 prices on the market, and it won't stay there forever."
Indeed, Adam says, "This is dollar-cost averaging at its best. Instead of buying 50 shares as you did last year, you're getting 100 today. When you retire in 20 years it'll be worth a lot more."
Not much has changed
While no one disputes that things can go wrong in crises and a stock downturn can last longer than anyone predicts, most agree the world is not coming to an end. That means companies will make money again and will be worth our investment. The key to investing smartly after Sept. 11 is the same as it was before Sept. 11: diversification, asset allocation and, frankly, patience.
When it comes to investing, Steinmetz said, "The things that made sense before still make sense." 
* Disclaimer
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