Your 401(k) and Today's Stock Market Volatility
As the stock market continues to be extremely volatile, many participants in their 401(k) or other company sponsored retirement plan are feeling anxious about what to do – or what not to do! History shows that the stock market has been through many volatile periods of ups and downs in the past 100 years. If you have the time and patience to wait out some of the downturns, you are usually rewarded for that patience and discipline.
Here are a few things we should keep in mind about retirement investing as we enter these unsettling periods in the stock market:
- Stay calm and stick to your plan– Stock market volatility is normal and can cause feelings of discomfort especially when the market is declining. Try to stay the course and stick to the investment plan that meets your tolerance for risk. If you are many years from retirement, don’t panic and sell out of the stock market if your account is losing value – investors who do sell out of the stock market typically find it very difficult to find the right time to “get back in” and miss some potential growth opportunities. As the saying goes, “It's about time in the market, not timing the market.”
- Stay diversified – 401(k) portfolios should hold a variety of types of investments. If you use a Target Date or Age Based Fund, the mutual fund company managing the fund typically diversifies those funds for you. If you are picking and choosing your own selection of mutual funds, make sure you hold funds across different asset classes – e.g. Large Companies, Small Companies, International Companies, Real Estate, Bonds, Cash, etc.
- Consider your time frame until retirement – The closer you are to retirement age, the less risk you should be taking in your portfolio. Use mutual funds that align with your time frame to retirement and your tolerance for risk. Make a point of revisiting your asset mix every few years and rebalance as necessary.
- Keep contributing to your plan – Stick to your investment plan so you can stay on course to meet your retirement goals. If you have a good number of years before you plan to retire, view a market downturn as an opportunity to buy shares of good companies at a discount.
- Seek professional advice – You are not alone on this journey of retirement planning. If your 401(k) has an investment advisor, or mutual fund or insurance company as a sponsor, reach out to them for advice. Your employer typically cannot give you advice on your 401(k), so reach out to a professional who can.
Investing for a long-term goal, like retirement, takes planning, patience and discipline. Your 401(k) plan can be an effective way to save for the future, and includes features that encourage investment discipline and long-term goals, such as tax-deferred savings and penalties for the early withdrawal of funds. This long-term focus is important because the stock market goes up and down daily, but generally goes up over time. Follow the five points above to stay “in your seat” throughout this current volatile market.
About the Author
I am a life-long MA native and live in Andover with my wife Nadine and our two daughters. When I am not in the office, I keep busy taking the girls to dance class and going on family bike rides. Nadine and I enjoy a night out on the town following our favorite DJs and bands, cutting a rug to the soul, disco, and R&B that we love.