Retirement accounts vs high yield savings accts

[neobot85]

Hi,

I have about $10,000 in an IRA and Roth 401k. I'm contributing $4200 to my 401k a year, to meet the company match. I give $416 a month to the IRA. I'm 23 years old.

I have an online savings account that yields 3%. Do you think it would be wise to cut down on my IRA contributions (maybe down to $250 a month instead) and put the extra money in savings? With the way the markets have been lately, I'm not sure if it's better to decrease the IRA contributions (they are invested in one of those lifecycle funds, so I don't really manage them myself...and I've lost almost 50%), or to keep them the same.

Any thoughts are appreciated! Thanks.

[jIM_Ohio]

Do you think it would be wise to cut down on my IRA contributions (maybe down to $250 a month instead) and put the extra money in savings?

NO

Stop chasing yield with the savings account. The difference between a 3 and 4 percent return on $1200 is $12. If you increase the savings contribution by $100/mo, you might earn another $12 for 2009.

The Roth should be invested in such a way where 30 year returns average around 8-12 percent. The current market environment is how the Roth gets the high returns (BUY LOW).

[disneysteve]

I agree with Jim. Stopping retirement contributions because the market is down is the exact opposite of what you should be doing. You are young and 40+ years from retirement. This is the buying opportunity of a lifetime for someone in your position.

If you are really uncomfortable seeing the balance fall and it is keeping you up at night, you could put your contributions into something less volatile within the IRA. You could even get a money market fund in the IRA. I don't recommend that but just throwing it out there as a possibility.

[maat55]

If your investing long-term, keep it in the market, if you have a short-term use, say for a car or down payment on a home, use your savings account.

[Goldy1]

I am proud of you for doing this and caring about your finances at such a young age

[Exile]

As I mentioned in previous threads, I don't share the above FF members' optimism about the future of "securities' (There's an oxymoron for you) . I don't believe that the market is just "down". We are likely heading for a depression because the problems behind the the meltdown are not just "cyclical". They're structural. And things are likely going to get a lot worse before it gets better.

Every financial comparison that we read about almost always seems to end with the phrase "worst since the 1930's ". Retirement fund participants alone lost over 2 trillion dollars in the 15 month period ending in Octorber. Who honestly believes that's just a "market fluctuation"?

In an Ebook that I wrote in 2006 I foresaw that the phenomenal real estate market value increase at that time was a bubble that would soon burst. I don't know whether it's because I may be a bit older (63) than most of the other forum members (as well as spending my career in credit and collections) and perhaps that's why I'm more cautious and skeptical, but I also have a more of a sense of history that maybe the younger members lack. And I'm no financial expert , but Alan Greenspan supposedly is, and he sure got it wrong. In the words of Bob Dylan, "You don't have to be a weatherman to know which way the wind blows".

Neobot85, I say stick with FDIC insured IRA and savings account for now. If and when the market ever recovers, you can consider shifting your position at that time. Meantime you'll have made some money while so many others who still think that the stock market is a good investment will have likely lost their shirts.