For an investment vehicle that’s only been around for 29 years, the 401(k) plan certainly has made a difference in American’s financial lives—for good and bad.
The Good Part
Well, 401(k)s, along with the matching contributions from many employers, certainly helped Americans save for retirement for much of the last three decades. From 1988, when the Dow Jones Industrial Average was at 1,833.55, to 2007, when it reached its highest point to date at 13,930.01, life was a cabaret for stock investors. Plenty of regular people, whose 410(k) plans were heavily investing in the stock market, rode that wave to retire as millionaires.
The Bad Part
Well, we can sum that up in four-digits. 2-0-0-8.
It was a bad year for the stock market, and in turn for most 401(k) plans too. How bad? Take a look at how 2008 ranks against some other notorious years in finance. The Dow closed at 8,776.39, down 33.84%. That's about the same percent drop as in 1930 or 1937, which posted 33.77% and 32.82% annual dips, respectively. Of the top ten worst years ever for the Dow, only 1907 (-37.73%) and 1931 (-52.67%) posted greater overall declines.
This brings us all back to 401(k) plans and what first steps one can take to minimize the damage.
Systematically, things haven’t changed all that much in how 401(k) plans are structured. Employees call their own shots, pick their own mutual funds and decide how much they will invest in them. One unfortunate byproduct of the recession, however, is the growing number of companies that are rescinding their company match contributions.
For Help, Start With Your Employer
Still, American workers don’t have to go it alone when handling their 401(k) plans. Virtually every company that offers a 401(k) provides access to the investment companies that distribute and manage them. You can also talk to your company’s human resources department, which should be keeping up with the latest 401(k) plan developments.
