Writtn by: PAUL R. ATTWATER, III

I keep hearing 401(k) participants ask the following questions: “Should I get out of my 401(k)?” and “Should I stop contributing to my 401(k)?”

Difficult markets make for difficult decisions – decisions which are often influenced by our emotions. What makes these decisions even more challenging is that we tend to see the answer as either A or Z. Get in or get out. Stop or start. In reality, most retirement plans offer options that represent a myriad of choices between A and Z.

Should I get out of my 401(k)?

It is important to differentiate between getting out of the 401(k) and getting out of the market. Getting out of your 401(k) may not be an option unless you have a “distributable event” such as severance of employment or reaching retirement age. Getting out of the market can be accomplished by transfering your account balances among the investment options offered in your 401(k). You may shift part of your 401(k) to fixed income investments or even more conservative options such as a fixed account or money market fund. The decision to make such a change should be based on your long-term goals and objectives.

Keep in mind, waiting until fear and concern reach a level that makes you want to “get out” will also lead to making another difficult decision in the future – when to “get in.”

Determining an appropriate level of risk is like dialing in your thermostat at home. Instead of getting out of the market and risking getting out at the bottom, consider resetting your investment choices to a level with which you can be more comfortable. You should also consider your investment time horizon.

Should I stop contributing to my 401(k)?

Many participants may be considering suspending their contributions to their 401(k)s. While it is always most difficult to invest your money when all the news seems bad, I recommend that participants continue to invest as much as they can afford. Even if you are close to retirement, there are many benefits to making contributions to your 401(k) including reduction of your taxable income so Uncle Sam is helping you save; tax-deferred earnings; and the possibility of an employer match. If you are concerned about taking risk, consider shifting to a more conservative investment mix rather than discontinuing your 401(k) investments.

If you have had a change in your financial condition, you may not be able to afford to invest at this time. If you are part of two income household, and one of you have lost your job, making sure you have adequate savings to get you through any difficult periods should take priority over maxing out your 401(k). If at all possible, consider reducing your contribution level rather than stopping entirely.

Despite rising unemployment, the vast majority of Americans are still employed and will probably stay that way. While there is no guarantee, if you are one of the employed millions, these periods of fear have historically created an opportunity to invest while prices are attractive. Now is the time to get to know your 401(k) better than ever. Review your investment options and understand that most 401(k) plans offer many choices that can help you through these difficult market periods.

Now is the time to get to know your 401(k) better than ever. Review your investment options and understand that most 401(k) plans offer many choices that can help you through these difficult market periods.

PAUL R. ATTWATER, III

Paul R. Attwater III is a Financial Advisor at Smith Barney, a division and service mark of Citigroup Global Markets Inc. Member SIPC. Citigroup Inc. and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.