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When it comes to making deposits into a 403b or 401k, a typical investor goes on auto-pilot. They make the same decision they did the previous month or quarter, assuming that it’s safer to stick to an old game plan rather than explore new opportunities. But if we have learned anything from this market volatility, it is that to insure growth, you must be proactive, assess your risk tolerance and focus on long term goals.

The first step in accomplishing all of this is to understand your mindset. When making a deposit, are you only thinking about buying the safest investments and parking the money until you have more confidence in the market? Or, or are you an opportunist who is willing to look for the greatest values, knowing that your time and patience will be rewarded when the market rebounds?

The old saying is that most investors care more about the return OF their money than the return ON their money. But in these uncertain times, volatility undermines our most basic beliefs about investing, causing us to panic instead of rely on sound judgment. The last five or six trading days are a good example. Huge market declines were interspersed with huge market rallies. In the midst of all this, everyone counted their gains and losses and forgot that the money was being invested for the long term.

That’s why you need to take a step back and look at your time line. If you are more than five years from retirement, or maybe even twenty to thirty years from retirement, then remember that you really are investing in your future. So if your portfolio is down by half, why rush to get out of the positions that you have? Sure you can say that you’d rather lose half than lose it all, but do you honestly think that the market won’t rebound over your lifetime?

I urge you to take a more positive, proactive view.  With every deposit, you are getting a tax deduction AND a chance to buy into funds at values we haven’t seen since 1997. This represents a huge opportunity for growth for you, along with an annual tax break. For example, a $10,000 contribution can save you between 15% and 36% annually.

Talk to your financial planner about the different ways in which you can take advantage of investment opportunities while still accomplishing preservation. And stop watching the daily ticker tapes. The only people who benefit are the makers of Advil.

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Tags: 401k, 403(b), cfp, financial planning, investing, lee rosenberg, market volatility, mutual funds, portfolio, retirement, savings, stock trading

About the Author: Lee Rosenberg is the Co-founder of ARS Financial Services, Inc. As a Certified Financial Planner with more than 34 years of solid financial expertise. Lee is a registered representative of Cadaret, Grant & Co., Inc. He was also named one of the top 25 Independent Financial Advisers in the US by Rep magazine.

This entry was posted on Friday, March 13th, 2009 at 8:06 am and is filed under investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.