Protect your money

Stocks Friday plummeted on fears that the banks might be nationalized by the federal government. The move took the S&P 500 index to its lowest levels in nearly 11 years. Are we going to lose all our money?

1) Get perspective

The average balance is just $50,000, which is enough to keep a couple going for a couple of years in retirement at best. The average 401(k) balance dropped 27 percent last year from $69,200 to $50, 200 according to Fidelity. The short answer is: No, the stock market isn’t going to drop to zero. Let’s put this in perspective – compared to last fall, there are some reasons for optimism. First, the focus of concern has moved to the economy and away from whether the nation’s banking infrastructure will collapse. That’s a big improvement. Recessions come and go but we can’t do without a banking system.

2) Consider other angles

There is a tendency to focus on returns. You shouldn’t just obsess over your 401(k) balance. You should also look at the number of shares you’ve purchased. You’ve been adding to the total number of shares throughout the decade – and are buying now at lows. What’s more, your entire 401(k) doesn’t need to be in stocks. You need an intelligent mix of investments to make sure your money grows over time.

Catch Gerri Willis every Saturday on Your Bottom Line at 9:30 am Eastern Time.