Bulletproofing your Investments DC

The last time you looked at your 401(k) or other investment portfolio, you probably weren't happy with how the current economic times were affecting the growth of your nest egg. But in slow economic times, should you expect your money to continue to grow, and is there a way to minimize-or even eliminate-losses?

While there isn't a way to bulletproof your investments from short-term loses, you can put a bulletproof vest on your long- and short-term financial goals. How? Through variations of the bucket system.

The bucket system teaches you to include in your investment accounts various types of mutual funds, stocks, bonds and even savings accounts based on when you will need the money and your acceptable risk levels.

For instance, if you know you're going to need money in the next two years for a down payment on a home or for your son's or daughter's college tuition, you want that "bucket" of money to be in safe investments such as a money market account, short-term CDs, short-term bonds or savings accounts, says Peggy Cabannis, president of HC Financial Advisors Inc.

When the economy is doing well, it's a common mistake to leave cash for immediate needs in a mutual fund in hopes of making a little more profit before withdrawing funds.But, Cabannis says, markets turn sour, as they recently have, and you could lose a large chunk of your investments-without having the time to make it back in the future. An example is a mutual fund dropping 10 percent in value when you had $75,000 saved for your new home. You just lost $7,500 of your down payment. But if you'd taken the $75,000 out just three months earlier and put it in a savings account with an annual rate of 2.5 percent, you would have earned $468.75-guaranteed....

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