Market Downturn: Should I worry about my 401(k)?

Market Downturn: Should I worry about my 401(k)?

March 19, 2020
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With COVID-19, the upcoming elections, oil prices, and many other uncertainties, the Stock Market has been in a bit of a freefall lately. Just a few weeks ago, investors were rejoicing at all-time market highs. Now, those same investors are bracing for recession. The current volatility serves as another example of the unpredictability of the Stock Market.

We tell our clients that it is impossible to predict a Stock Market high or low. For years people predicted the end of the Bull Run, but the Stock Market kept climbing and reached unprecedented highs in the past decade. Now that the market has given back some of the gains, will it continue to fall or rebound quickly? It is unlikely that we are in store for a quick rebound given the severity of the current situation with COVID-19 but, historically, the market does come back from events like this. It just takes time.

Make a Plan

The advice that we give to our clients is to make a plan. We call it a Wealth Plan and it serves as the roadmap to get them from where they are currently to where they want to go in the future. The Wealth Plan helps us to create strategies that will guide the decisions that we make regarding their accounts. 

So what do we do when things do not go to plan? 

  • When it is something in the client’s personal life, we tweak the plan if necessary to account for the changes. 
  • When the impacts come from the outside, such as the recent market downturn, we usually stick to the plan. Why? Because the plan already includes market corrections and other unforeseen events. Our Surge and Protect Strategy is the main tool that we use to help to protect capital in down markets. 

Having a plan in place that factors in market fluctuations helps us to make better decisions during emotional market reactions. When the market is way up, we enjoy the upside. When the market is way down, we relax knowing that we have a long-term plan in place that will hopefully help us to ride out any dips. 

Talk to your Advisor

If you are concerned about the effect that the market downturn will have on your 401(k) or any of your investment accounts, it is a good idea to talk to an experienced Financial Advisor. We can help you to take a look at all of the factors that are impacting your investment goals. Together we can develop a plan that will help you to work towards those goals in a way that is manageable for you and that factors in market fluctuations and other personal and global impacts. 

If you are less than 5 years away from Retirement: 

If you plan to retire within the next five years, you are in the home stretch and planning is critical. First, realize that you do not need to panic. If you have been saving and investing with a good plan in place, you are probably going to be just fine in the long term. Having a large downturn during this phase may slightly alter some of your plans but, it should not derail them completely. 

The decisions that you make now could greatly impact the success of your retirement plan. Now is the time to look at your accounts and address any changes that need to be made. Keep an eye on your accounts but avoid checking them constantly. There is no need to add unnecessary stress which can do much more harm to your health and well-being in the long run. 

Hopefully, you have been coming in for regular Review Appointments over the past few years. Meeting with us as you near retirement will help to ensure that a good plan is in place that will account for life events and market volatility that may come up. Even if we have been meeting regularly, it is a good idea for us to touch base again to take a look at the impact of the current downturn on your overall Wealth Plan. The sooner we act, the better decisions that we can make. Hopefully, by acting quickly we can avoid any drastic changes to your retirement plan. Many times, the plans that we have already made are sufficient to cover a market downturn but, it is good to check, especially to calm any fears that you might be having regarding the current situation. 

If you are 5-10 years away from Retirement: 

At this point you need to be more intentional when it comes to retirement planning. While you still have time to recover when the market dips, you should be meeting with a Financial Advisor on a regular basis to make sure you are on target to move toward your retirement goals. If you have never asked us to look at your 401(k) plan and your holdings, you should probably schedule an appointment soon to make sure that you are on the right track. When we are creating your Wealth Plan, it is important for us to be aware of any accounts that we do not hold. Retirement accounts such as 401(k)s need to be factored into your Wealth Plan to help with asset allocation and strategies to help you work toward your goal of retirement. During this phase, there is a lot that should be done to address any issues that might affect your current retirement plans. 

If you have factored your 401(k) into your overall Wealth Plan and we have given you our recommendations, you are probably ok to continue with your current strategy. You should login to your 401(k) account website and look at your account to make sure that nothing jumps out as unusual.  If the account and the individual holdings seem to be down at a level that is consistent with current market levels (you can use the Dow Jones Industrial Average, the S&P 500, or any market index that you prefer as a comparison), you may not need to make any changes at this time. If you have been meeting with us every 6 months for regular reviews, you are probably on track for your retirement goal even with the current downturn. Keep coming in on a regular basis to review your accounts and bring your 401(k) statements and any outside investment accounts for us to review and update in your Wealth Plan each time we meet. We will continue to monitor the Stock Market, your personal goals, and life events in order to update your plan, make changes when necessary, and ensure that we keep on track toward your retirement goal and any other goals that you might have.

If you do notice something unusual in your account or you have not come in for a review in a while, it is probably a good idea to schedule a review in the near future. We can look at all of your accounts and make necessary recommendations and changes to your investments and Wealth Plan. You have time to recover from a downturn, but good planning is critical during this phase since the window to make corrections and recover losses is much smaller than in younger years. A little bit of planning could go a long way to helping you reach your retirement goals. 

If you are 10+ years away from Retirement:

At this point, you probably do not need to make many, if any, changes to your current 401(k) investment strategy. If you contribute regularly to your 401(k), the effects of dollar cost averaging should work in your favor over time. Yes, the funds that you had previously held will be down right now but, any new money that comes in with each contribution will be able to be invested at a lower cost since the cost of most stocks is much lower than it was even a few weeks ago. 

If you have never asked us to look at your plan and your holdings, it might be a good idea to schedule an appointment in the near future to make sure that you are on the right track. We might make a few recommendations regarding the correct asset allocation given your age and life goals. After you have selected investments that are in line with your overall Wealth Plan, you can let those assets continue to grow for the next several years. We will continue to factor them in when discussing future goals in your Wealth Plan. If you go through any major changes such as a job change, you should discuss it with us and consider the best options for your 401(k). As long as you keep working at your current job, keep contributing. 

If you have already had us look at your asset allocation and you are comfortable with the way it is currently set, you probably don’t need to do much. It would be good to login to your 401(k) provider website to take a look at your account to make sure that everything is correctly set up. If you notice anything that jumps out as significant, you can contact us and request a review of the account. If the account and the individual holdings seem to be down at a level that is consistent with current market levels, you might not need to do anything at this time. If the market follows historical averages, your account should be able to survive the current downturn and should eventually rebound to more normal market patterns. 

If you do notice something that is out of the ordinary in your account, it might be a good idea to have us look at it and offer you an opinion. Fortunately, you have many years to continue to invest and save into your retirement accounts to prepare for your future. Dips like this will happen occasionally but they should not affect your long-term investment plan or your future goals.  

This too shall pass

Over the years, the Stock Market has seen many highs and lows. The record highs are always a lot more fun and exciting than the lows but, both are a part of a healthy Stock Market. While each downturn has its own characteristics and time frames, historically, the market does recover from dips, even large ones. It often takes less time than investors fear it will take for it to recover. 

No one can say how long this downturn will last or how long it will take us to get back to the highs that we saw only weeks ago. However, having a good plan and sticking to it will help any investor to endure the volatile swings of the Stock Market.

Have questions about your 401(k) or need a better plan for your wealth? Give us a call and we are happy to take a look at your 401(k) or any investment accounts that you might have. We would love to give you our thoughts and recommendations.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Photo by By piter2121


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