The Enron collapse left thousands of employees facing an uncertain future with 401-k's tied up in now-worthless company stock. Their situation has many people wondering about their own retirement plans.
Financial planners say one of the most important things to do when planning for the future is diversify. What does that mean? First, create a 401-k portfolio that combines several different investment options like stocks and bonds. Second, look for opportunities outside the plan your company offers to help shape your retirement savings, an IRA, for example. Once you've diversified, stay informed. â€œI think Enron should make people concerned, but it shouldn't make them afraid of 401-k's." Financial planner David Provenzano says keeping up with investment performance can help head off trouble.
Despite the disaster at Enron, he believes a 401-k is still one of the best choices out there. But choose wisely, any company can hit tough times. "What's important is that they do think about where they're investing. If they are in their company's stock, they need to make sure that they're diversified and not too much of their assets are in the company's stock." When deciding how to invest, look for a fund that's had positive returns over the past five years and minimal loss in the past year and a half. And the younger you are, the more you should invest in stocks. The closer you are to retirement, the more you should consider income-producing bonds.
Some investors are educating themselves and keeping a close eye on the stock market. A Tulsa woman who bought Enron stock before the company collapsed now wishes she'd waited. Kate Cottrell, "I actually looked at it in an opportunistic fashion and I'm ready to buy more if it drops. " As Enron did, many companies match part of an employee's contributions to a retirement plan. Although a slower economy has some doing away with matching funds, Provenzano says the 401-k is still a good plan because it's pre-tax savings. But, fight that urge to load up on the highest performing funds. "People want to buy more of the one that's doing good. But they should actually sell some of the one that has done well and buy some of the ones that have not done quite so well. Itâ€™s basically rebalancing the portfolio."
No matter who manages your savings plan, it's up to you to stay informed. Kate Cottrell isn't willing to trust her retirement to someone else. "I think companies are looking at their bottom line. How it used to be in the past that companies took care of their employees, that just is not true today." An interesting note, in the past two years, a third of individual stocks lost at least half their value, but just one fifth of diversified stock funds lost that much.