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These days, it seems as if you can hardly turn on the TV or radio without hearing news of the current economic recession and its impact on our nation’s retirement savings accounts. And it’s true – many people’s 401K, 403(b) and IRA accounts have lost significant value as a result of declining stock values and the current credit crunch. However, don’t let these numbers scare you away from contributing to these important investment tools. Stock prices are currently at all-time lows – making it a great time to bulk up your retirement portfolio.

Getting Started

For most regular, full-time employees, getting started with a 401K or 403(b) account (the 401K equivalent for public sector workers) is as simple as filling out a few forms. Check with your company’s HR officer to learn more about 401K enrollment requirements, which may include specific enrollment periods or a certain length of employment before you can begin investing. In addition, see if your company matches any portion of your contributions and at what level. If they do, try to contribute as much as necessary to earn the full match – otherwise, you’re throwing away free money!

Basic Allocation Decisions

Most retirement accounts allow you to make your own investment choices from their selected list of stocks, bonds and funds. If you do choose to allocate your 401K funds on your own from this list, you’ll need to make a few basic decisions:

Stocks versus Bonds. One of the biggest decisions you’ll need to make when it comes to allocating your retirement funds is the percentage you invest in stocks versus bonds. Stocks are riskier investment vehicles than bonds, which tend to offer steadier – if smaller – rates of return. Of course, the proper investment ratio for you will change throughout your lifetime. For example, as you get older – and closer to relying on your retirement funds as a source of income – you’ll want to minimize your exposure to risk by investing more heavily in bonds.

Domestic versus International. Another important decision you’ll need to take into account is whether to invest in domestic (US-based) stocks only or to diversify with international funds as well. In general, international stocks and funds are riskier options, although growing economies around the world may offer a higher potential for financial gain. Most investment experts recommend at least a little exposure to growing markets through international stocks; however, you’ll need to take your personal tolerance for risk into consideration.

Take the Easy Way Out with Target Date Funds

Don’t worry if choosing your 401K fund allocations sounds like too much. More and more retirement savings account providers are offering “Target Date” funds, which automatically adjust the proportion of your money in stocks versus bonds as you near your target retirement date. These funds are typically named for their target retirement year – for example, “The Target 2030 Fund” – and are managed by account executives at the 401K provider. If you’re feeling overwhelmed, they’re a great “hands-free” way to ensure your retirement investment plans stay on track.