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So what if the company you work for, or the company that manages your 401(k), goes out of business? Is your 401(k) is safe?

By law, 401(k) assets are held in trust so it’s never counted as part of a company’s assets. The only thing your 401(k) is vulnerable to is investment loss. (Just an FYI: If you have money in your 401(k) in your company’s stock, and the company goes bankrupt, you do lose that money. This is another reason for diversification.)

If you’re concerned about the diversification of your fund, pull out your most recent 401(k) statement or ask someone in your human resources department for an update to make sure your savings are spread across more than one type of investment.

Even as the market is going through its fits and starts, many experts are saying that you should keep contributing to your 401(k). First, the company match you receive helps to cushion any losses in the short term. If you invest $1 and your company matches 50 percent, then you have a $0.50 that did not come directly from your pocket. Also, your savings are tax-deferred so you have more money working for you. When you cash out, you get tagged with a 10 percent early withdrawal fee and federal and state income taxes, which can eat into as much as 40 percent of your initial investment.

More importantly though, when thinking about saving for your retirement it’s never a good idea to try and “time” or “play the market,” but rather, you should be consistently contributing to your fund over a long period of time. Mellody Hobson, a Good Morning America financial contributor, tells us why:

It is never a good idea to sit on the sidelines when it comes to saving for retirement. As I have said time and time again, it is absolutely impossible to time the market. There have been a number of studies that have shown that the negatives of missing just a handful of the best days of the market far outweigh the benefits of missing the worst days, and we all know there is no way to predict with 100 percent certainty the good and bad days of the market.

Again, one of my favorite sayings is that bull markets always follow bears. After the last bear market, stocks zoomed up almost 33 percent just one year later. You do not want to miss out on this rebound!

Read more on what Mellody says are the “Five Must-Knows About Your 401k Fund” by clicking here.

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October 7th, 2008 | Category: In The News | Subscribe to comments | Leave a comment | Trackback URL