Financial Fundamentals: The importance of sticking with a plan

John, 51, has worked for a construction company for 30 years. During that time, he participated in the company's retirement plan. John has seen economic booms and busts but, overall, has seen the balance steadily grow.


Part of the growth has been due to stock returns. Part of the growth due to the company match. For every dollar he puts in, the company matches 50 cents on the dollar.


Recently, John received his 401(k) statement. He was shocked at how much it has gone down. John had been invested mostly in stocks.


His first reaction was to stop making contributions to the company retirement plan. He also considered moving his money into a more conservative investment option.


John met with his financial adviser seeking direction about what he should do. The adviser pointed out the problem seemed to stem from the portfolio's asset allocations at the time of the economic downturn.


John had been told at annual retirement plan enrollment meetings that, as he gets older, he should get more conservative with his investments. But he always had enjoyed positive returns in the stock market and believed he was prepared for a temporary downturn.


John found out he really was not prepared at all for a downturn of this significance. After thoughtful consideration, he realized that now is not the best time to sell his stock portfolio and move to more conservative investments like a short-term bond fund. John decided to leave his money in the stock funds for now but set a definite target date at which he would reallocate his funds.


As a rule of thumb, the amount of equity exposure John should have should be about equal to the number 100 minus his age. He was aware of the formula. John is 51. So the formula would indicate an appropriate asset allocation of 49 percent in stock mutual funds with the remaining 51 percent in bond mutual funds.


John also knows that the best time to buy stocks is while prices are down. So instead of stopping his contributions to the retirement plan, he continued making them like he has over the past 30 years. After all, the company is matching the contributions with 50 cents for every dollar he contributes.


John does not plan to retire for at least 15 more years. He now has a plan. By holding to his plan, the assets in his retirement plan will be properly positioned for economic booms or downturns that inevitably will occur.


If you are concerned about your retirement plan assets, contact a Certified Financial Planner today and map out a plan for the future.


Scott Irwin is a Certified Financial Planner® and a Certified Employee Benefit Specialist. He also is a member of the Ark-La-Tex chapter of the Financial Planning Association, whose members contribute to this column weekly. If you have questions or topics you would like to see addressed in this space, send inquiries by e-mail to or by mail to Financial Fundamentals in care of The Times, Money/Business, P.O. Box 30222, Shreveport LA 71130-0222.

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