By BankingMyWay.com Staff
You’re driving down the highway and a deer runs into the path of your car. You swerve and miss it but then over-correct and your car careens into oncoming traffic. You get hit by a large truck.

For many investors, the biggest damage to their portfolios may not come from the problems in the market (the deer) but rather from their over-correction. With so much attention centered on the market, many investors are getting much more involved with their investment portfolios. Fear of losing their nest egg has caused some to panic and make costly mistakes.  Here are some such mistakes and how you can avoid making them:

Cashing Out Your 401(k)

Getting your 401(k) statement and finding your account has lost 40% of it’s value can be very troubling. You may even be tempted to cut your losses and take what’s left of your money and run. Doing so, however, could cost you dearly. First, you’ll get hit with big penalties if you take your money out before you hit retirement age. Second, you’ll be selling low when you bought high, and that’s the opposite of what you’re supposed to do. Third, if you get out of the market, you’ll probably miss the best days for returns and lose out on your chance to earn your money back. Fourth, if you don’t contribute, you won’t get the benefits of any employer matching contributions. Step back for a moment and think about your investments. You don’t really lose money until you sell. Until then, all you lose is value.

Stopping Contributions to Retirement Accounts

So maybe you decide to stay invested in your retirement accounts, but you don’t want to keep pouring money down the drain by continuing your contributions, right? Wrong. If anything, you should probably be enhancing your IRA contributions. Stocks are on sale, so you will actually be getting more for your money. The stock market is a buyer’s market right now, and mutual funds are a great way to take advantage of it. If your asset allocation is set appropriately for your time horizon, you can capitalize on the bear market in the long term. After all, retirement accounts are not designed for short-term tracking.

Using Your Emergency Savings to Pay Mortgage Debt

With the economy in crisis, cash is even more important than it was before. You now have a higher potential to lose your job and less of a credit safety net to rely on. Consequently, fully funding your emergency savings is crucial to protect you from unexpected expenses. Don’t be tempted to use your liquid savings to pay down low-interest debt like your mortgage or student loans. These types of debt cost you very little to carry, and it’s not worth paying them off at the expense of your emergency fund. If your emergency fund is already fully funded, look to pay off high-interest debt like credit cards first. Then you can focus on paying off your mortgage.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.