by Survival Insight on July 4, 2013

Everyone knows the stock market has been scary over the last few years. Because of that, it’s important to know how to save and protect your 401k in these times.

When the stock market is a mess, should abandon your 401k entirely? Or just focus on making a few minor adjustments to try and salvage your 401k?

The answers to these questions will depend on your age and personal circumstances, but some general principles do apply. Here are some basic actions anyone can take to keep your 401k account safer:

Review Your 401k Portfolio

Most people never look at their 401k once it is first set up.

However, financial experts recommend a review of your 401k at least once each year.

When conditions are difficult like they are now, it is even more important to review and adjust how your money is invested within the 401k plan.

Most companies provide software that will make these adjustments for you automatically, but you have to take the time to actually go into the plan, use the software, and make the changes.

Check out this article to learn more about how to manage your own 401k .

Choose Safety if Youre Over 50

When you are over 50, you should change your strategy to reduce the risk of your investments. Choose a more conservative investment strategy. You can always readjust later when the market recovers.

Even though you may want to make up for the losses you’ve encountered when the market crashed, you simply can’t afford to risk any additional losses.

A 2% return is a much better deal than another 30% loss, especially when you will need access to that money in just a few short years.

Act, Dont React

While it is important to complete a yearly review and adjustment; don’t react to every negative market trend by jumping into your 401k and reallocating all your investments.

The market goes up, and the market goes down. Pick a strategy and stick to it.

Most 401ks allow you to choose pre-mixed portfolios of high, moderate, or low risk.

Choose according to your current age and circumstances, and then leave your portfolio alone for at least six months. Constantly shuffling your 401k investments is not the answer, and will only increase your anxiety.

Don’t Get Scammed

Run from anyone who advises you to cash out your 401k and invest the money in a single fund that ‘guarantees’ a magically high return.

Even during good times, no one can ‘guarantee’ a high return.

Cashing out your 401k will cause you to incur significant penalties if you are under 55, and even if you are over 55 you will in most cases still have to pay income tax on the disbursement.

If something sounds too good to be true, it is.

Check Out IRAs

Some IRAs (Individual Retirement Accounts) are set up like CDs, and do come with a rate of return that is set for a certain time period, the same way a CD does.

Other IRAs are set up in money markets funds, and are similar to a 401k in terms of risk.

If you are nearing retirement and facing further losses on your 401k investments, the IRA option might or might not be a good way to lock in a set rate of return.

However, this is only true if your employer allows you to rollover your 401k to an IRA without a penalty.

Check Your Contribution Percentage

Most employers match a certain percentage of 401k contributions. Especially during a recession, you want to make sure you are getting this money. Turning down free money from your employer is nuts.

However, if you’ve been contributing more than the maximum employer matching percentage, consider dropping your contribution and putting the difference into a high yield liquid savings account instead.

Build Liquidity

Every working person should have at least three months wages put away in an interest bearing savings account. Six months is better. Unfortunately, most people don’t even have one month of savings salted away.

Start saving. Now.

A good way to do it is to choose one of the high yield savings accounts at an online bank, and have the money taken directly from your checking account or your paycheck.

Online banks typically pay higher interest rates than regular retail banks, and it is harder to get at the money in an online account, so you’re less likely to spend it.

Use CDs Intelligently

Many, many, many people refuse to put money anywhere besides a checking or savings account, even when the savings account pays a single percentage point in interest or even less.

If you have over $2,000 in a savings account that you haven’t touched for six months, put most of it in a Certificate of Deposit instead.

CDs pay higher interest rates in exchange for your agreement to lock up your money for a set period of time. The longer the time period and the greater the deposit amount, the more interest a CD will pay.

Banks offer regular CD specials designed to lure customers away from other banks, so shop the rates before locking your money up. CDs are guaranteed by FDIC up to a total deposit amount of $250,000, just like checking and savings accounts, but the return is much, much better.

Dont Panic

Finally, don’t panic. No one makes good decisions out of fear. Don’t do anything drastic because you are upset, and don’t invest in anything that sounds too good to be true.