Agony Over My 401k Portfolio

I am agonizing, this morning, over what to do with my 401k portfolio.

I rely on the assets in my 401k to supplement my retirement income to cover my mortgage and other fixed monthly expenses. The 401k assets are, however, plunging in value. The decreased value means that I may lose my home within a few years AND be totally broke. This personal disaster is not, I am sure, unique to me. Houses just don't sell in my geographic area (Northeast); so, moving to reduce expenses is not an option. Besides, selling my home at an extreme loss seems like a poor idea.

How is your asset management going? Are you on a fixed income and anxious over the drop in value of your retirement funds? Do houses sell in your area?

Surely, my anxiety over this problem is not unique. Could we somehow have an anxiety level contest? How could we measure anxiety on the Web?

My portfolio is in the "low risk" category of the company I deal with. Low risk has turned out to mean an average drop in value of about 65% since the start of the economic free fall. The assets are primarily stocks and bonds that are subject to market fluctuations – meaning drop.

Keeping the assets spread across several funds provides some protection from decreases in value. More importantly, diversity also offers opportunity for growth in a market that is not running scared. A market that can sustain a surge in value.

My preferred safety option right now is to transfer at least 50% of my assets to a cash fund. Cash provides no opportunity for growth and no risk of a decrease in value. A simple cash fund allocation would decrease my anxiety over catastrophic loss in value of stocks and bonds. I probably will choose to put some of the cash into an account that is based on certificates of deposits (CD's). This approach makes a lot of sense to me.

After all, I can calculate how much liqud cash I need per year (or any other period) to cover my fixed monthly living costs. That implies I can buy CD's with maturity dates that make cash available when I need it for expenses.

I would like to hear what you are doing to protect your assets. Are you moving assets to cash as a safety net? Are you less risk averse than me? Do you rely on retirement funds for monthly expenses? How is that working out for you?