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Join retirement savings plan?

Question: Hi Chris. I have the option to enroll in a retirement plan at the company I work for. In light of the current stock market turmoil, I am a bit weary to enroll and wonder, is it worth it? I do have options of safe, moderate or risky investments, but they all seem a bit risky now. I am a 29 year old, earning about 41000 a year and the only debt I have is student loans, lots of student loans. Thank you for your insight. Janet, Minneapolis, MN

Answer: It's definitely worth it to participate in the retirement savings plan at work--especially if your company matches at least part of your contribution. I think even those financial planners and market forecasters that expect years of low returns and bad markets ahead of us would agree with that. The "match" is where much of the return comes from in a retirement savings plan.

Still, even if your company doesn't match your contribution, I would join the plan. For one thing, it's pretax dollars that goes into the retirement account. For another, the automatic withdrawal from your paycheck makes it remarkably easy to save, something most of us find difficult to do even with the best intentions.

I feel less strongly about which investment option you choose, although I want to stress the importance of building up a well-diversified portfolio. It's impossible to know if the market is hitting bottom now--or might do so in a year or even two. That's why the old proverbs that preach diversification and dollar-cost averaging remain wise counsel to anyone investing for the long haul. Diversification isn't a hedge against any financial crisis over a short period of time, but it's a smart strategy over any length of time. By mixing stocks, bonds, and other assets you can earn the highest potential return for the amount of risk you're willing to accept.

The benefits of diversification in reducing risk have long been recognized. A passage from the Talmud says, "A man should always keep his wealth in three forms; one third in real estate, another in merchandise, and the rest in liquid assets." Antonio in the Merchant of Venice slept soundly because, "My ventures are not in one bottom trusted, nor to one place; nor is my whole estate upon the fortune of this present year." Ideally, some of the assets in your portfolio will zig when others zag. Since no one really knows which markets will soar or sink, investing in all the major asset classes creates an opportunity to limit the damage from a downturn and to be in a position to catch the next big market upturn.

However, if for now your not sure what to do, join the plan, put the money into very safe assets, and then figure out over time how you'd like to create a diversified portfolio.

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