Continue Investing To Capture a 401-k Match Still Beats a Down Stock Market

by Hank Coleman

Here is a recent question from a reader….

My father-in-law is putting the bare minimum into his 401-k to get his 3% match from the company because he says his loosing more than his putting in.  He wants to stop contributing because he says that the 401-k is losing so much in the down market.  Should he keep investing in his 401-k or switch to another option like a Roth IRA?

Great question!  Thanks!  Your father-in-law should continue to contribute to his 401-k just enough to capture the company’s the match.  No matter how badly the stocks in the 401-k are doing, he is doubling his money right off the bat.  He’s making a killing even though the stocks are going down.  He should continue to choose a well diversified portfolio of mutual funds in his 401-k.  Your father-in-law should contribute to his 401-k first before any other investments.  There is no other place in a bear or bull market that he will find a 100% return on his money even if it is just 3% of his income.

After your father-in-law puts in 3% and gets his match, he should stop contributing to his 401-k and start a Roth IRA if he meets the income eligibility requirements.  He should max out a Roth IRA before continuing to contribute more than 3% to his 401-k.  This will most likely help him in the long run save a lot his capital gains earnings from higher taxes in his golden years.  Hope this helps…thanks again for the question.

I love getting questions from readers.  If anyone else out there has a question you want me to tackle, e-mail me or contact me through the contact page of the blog.

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