6 Tips for 401(k) Investors in this Volatile Market

by Guest on April 6, 2020

in Benefits


The stock market ended its 11-year bull run earlier this year as fears over the coronavirus (COVID-19) gripped investors. With volatility returning to the stock market with moves of up/down 5-9% a day frequently occurring, retirement plan investors are left feeling very anxious and wondering what to do next. The following are six tips designed to help employees assess their 401(k) accounts in the current market environment and get through this difficult period.

We encourage employers to share this with your retirement plan participants.

1. Keep Making Your Contributions

You might be asking yourself “should I stop making contributions to my 401(k)?” as so many people are. Our recommendation is absolutely not!

While it is scary to see red minus signs next to the investments in your account, that is exactly why you should continue your contributions. Stocks are on sale right now which means your regular paycheck contributions are buying even more shares of your chosen investments. And if you have an employer that matches your retirement plan contributions, you are buying shares partly with “free” money.

2. Stay Invested

While you may be tempted to sell everything and put your money in cash, without a crystal ball, it’s really hard to predict market movements down to the day, week or even month. And if you try to do so, you’re likely to miss some of the market’s best days, which can have a significant negative impact on your retirement account. Figure 1 below shows the effects of missing 10, 20, 30, 40, 50, or 60 of the best days of the S&P 500 over a 20-year period.

Figure 1
Source: J.P. Morgan Asset Management


Trying to time the market is extremely difficult to do. Market lows often result in emotional decision making. Investing for the long term while managing volatility can result in a better retirement outcome.

Although it is difficult, it is best to plan on riding out volatile market periods. Intra-year pullbacks happen often. As Figure 2 shows below, markets have suffered double digit declines in 22 of the last 39 years (as shown by the red dots and numbers), yet still ended those years with positive returns 75% of the time. It is understandable that the last few weeks in the stock market may have you scared about investing in stocks which is why we remind participants to maintain a long-term perspective.

Figure 2
Source: J.P. Morgan Asset Management

3. Revisit your Overall Asset Allocation Strategy

With that said, however, now is a good time to revisit your long-term investment strategy and allocation to stocks. A thoughtful investment strategy takes into account your unique circumstances such as time horizon and tolerance for risk and can take the emotion out of investing, so that decisions are based on a long-term outlook instead of short-term market movements.

Investing is always about finding that balance between our desire for high rates of return with the disappointment that comes from losing our hard-earned money. Determining the level of risk you’re comfortable with is incredibly difficult and sometimes is only realized during rough times, like now.

Target retirement date funds are a great option for investing within a 401(k) plan for those participants seeking professional help with this. These investments are a one-choice type of investment, in that you don’t need to pick the individual funds or determine the appropriate mix of stocks and bonds because the target date fund does this for you. The only thing you need to do is select the fund with the date that most closely matches the year you will retire. The fund will automatically adjust its asset allocation to be more conservative as you get closer to retirement age to protect your account balance.

4. Rebalance your Retirement Account

An investment plan should include target percentages for the various asset classes such as stocks and bonds. As these different asset classes outperform or underperform, you’ll need to rebalance your retirement account back to its original targets. For example, if you’ve set a target of 40% stocks, and stocks lose 10%, then your account will be underinvested in stocks. So now is a great time to rebalance your account into stocks when prices are much lower. If you are invested in a target date retirement fund however, you don’t need to worry about this as the fund will automatically take care of this for you.

5. Treat your Account like a Safe-Deposit Box

In uncertain times like this, it’s tempting for employees to want to tap into their retirement savings accounts, but the penalties and taxes will be costly in the short and long-term. For example, if you withdraw money from your 401(k) account prior to age 59½, not only do you need to pay taxes on the amount you withdraw, but you also owe a 10% penalty for withdrawing early.

We recommend you treat your retirement accounts as a safe-deposit box, only to be opened when you reach retirement. Every one of us encounters unexpected financial difficulties at one point or another during our lives, and right now with the unknown economic impact of the coronavirus is no exception. However, in order to build sufficient wealth so that we’re able to retire, it is important to maintain our contributions, and resist the urge to withdraw from the account when times are tough so that we can get the full benefits of tax deferred growth and investment compounding.

6. Call Matisse Capital If You Have Any Questions

Please reach out directly to our team if you have any immediate questions: info@matissecap.com

Matisse Capital is Cascade’s chosen partner for retirement plan management. Together, we are committed to empower employers to equip their employees with tools to save more for retirement.

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