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How safe are my investments?
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With all the stories in the news about companies going out of business, many individuals wonder whether their retirement plan is safe. It is Retirement plans assets are held by a trust and are not assets of your employer, so your contributions to the plan are protected in the event your employer experiences financial difficulties (the value of your employer's stock held in your retirement plan account, however, could decrease). In addition, your investments are set apart in your own name, so there's no pooling of assets: What you see in your account statement is yours.
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It's important to recognize, though, that retirement plan investments aren't the same as a bank savings account. Neither your company nor any government agency guarantees your investments against the kind of losses that regularly happen in the financial markets. The government doesn't even insure Guaranteed Investment Contracts (GICs), one of the safest investments you can make. So in the event of a widespread market collapse–such as the one that occurred in 2008–your plan investments could plummet in value.
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On the other hand, the control that you have over your money in a deferred contribution plan is your biggest protection against such a loss. If you follow basic investment principles and spread your money across the major kinds of investments–stocks, bonds, and cash–you can reduce (though not eliminate) your risk of losing money over the long haul.
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Sure, there may be a few periods when your investments drop in value, but a well-diversified portfolio will help smooth out some of the bumps. In the long run, not reaching your retirement goals is a greater risk than losing money in your plan.
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