One of the most unsettling feelings in the world is to watch the stock market crash knowing that you are invested heavily through your 401(k). A knee-jerk reaction to such a scenario might be to move your money out of the market and into a money market account. However, this could end up doing more harm than good.
“So, if the market is suffering and moving all of my funds is not generally a good idea, what can I do to protect my 401(k) during a stock market crash?” Well, the answer to this looks a little different for each investor, but there are some general truths to keep in mind.
Protecting your 401(k) during a stock market crash
We know it is scary to see investments take a dive, but this is not the time for panic. This is the time for smart decision-making:
- Think of the long-term — Volatility in the stock market is normal. Some years are better than others, some are worse. During a large-scale crisis like the COVID-19 pandemic, many people liquidated in an effort to avoid taking a bigger loss.
However, you must remember that money in your investments is not lost until the investment is sold. The market is volatile, but with a balanced, diversified portfolio, you should be able to ride it out and yield returns when you are ready to retire.
- Rebalance your portfolio — You should have an asset allocation strategy in place. You want x percent in stocks, bonds, etc. When a crash occurs this allocation will become unbalanced.
SoUse those times to sell the things that have become too high a percentage and use the money to buy those assets that have too low a percentage.
- Keep contributing — When the market is suffering, you might be tempted to stop contributing to your 401(k) if you are still saving. This is a problem because it puts you off track to reach your retirement goal. Most financial advisors take into consideration the risks of volatility and market downturns when creating a retirement strategy. It is important to stick to this plan to stay on track.
Protecting your 401(k) with a financial plan with ProVise
Going into retirement without a financial plan is like cooking without a recipe. If you do not take the time to learn the recipe, gather the right ingredients and cook them correctly, you will end up with a bad meal. Having a financial plan takes the recipe and ingredients into consideration — how much you need to save, how to navigate the volatile fiduciary landscape and how much you should try to live off of annually during retirement — so you can end up reaching your retirement goals.
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can help you make the right investment decisions when it comes to your 401(k) and other financial areas. We can analyze your current circumstances and goals to create a plan for you at a fiduciary standard of care. We offer an unconditional money-back guarantee if you are unhappy with your written plan. Simply return it to us and we will refund 100% of the fee paid.
Are you ready to talk to a ProVise financial advisor about protecting your 401(k) during a stock market crash? Contact ProVise today to schedule a complimentary consultation.