Since January, the S&P 500 stock market index has lost approximately 20% of its value. If you have any equities in your 401(k), your account balance has also fallen behind. And if your retirement investments are not being managed properly during this bear market, it could be time to seek expert assistance. Here’s the bright side: You only have three basic options for your 401(k) at the moment, and none of them is difficult. You can do nothing, become more conservative, or become more aggressive. Continue reading to determine which option is best for you.
1. Do nothing
A bear market is, by nature, a temporary phenomenon. You may intellectually grasp this, yet it’s difficult to accept because the timetable isn’t set. It’s possible that the market will take months or even years to recover before resuming growth, which is unsettling.
A recovery will eventually occur. And for that reason, taking no action is frequently the most effective bear-market strategy you can pursue. It may also be the most difficult course of action to take. When the market drops, you naturally want to take some action in order to regain control.
Recognizing that you don’t have to act on your urge is the first step. Lean on any life hack that has worked for you in the past; maybe it’s some deep breathing, a rigorous workout, or a peaceful walk in the woods.
It’s much easier to appreciate the advantages of not reacting to this bear market if you approach it from a calm mentality. Your assets continue to grow. You are not required to make decisions or predict when the market will turn around. Your portfolio is prepared to enjoy the benefits of comeback gains once it does recover.
2. Get more conservative
If you plan to retire in the next few years, you may safely change your style of investing.
To be clear, going more conservative does not necessitate the sale of your stock funds. You don’t want to sell now because share prices are low for the time being. As a result, you would receive less money from those liquidations.
You could adjust your investment allocations for new contributions, which is what you should do if the tax rates change. If you’re currently invested 70 percent in stock funds and 30 percent in bond funds, you might move to a 50-50 split. You may make a significant adjustment if your cash reserves are low, or a minor one if the objective is to feel more secure about your finances.
A mix that is less aggressive may not remove the ups and downs in your account. However, it will improve the balance of stable assets in your account. It might be reassuring, especially if you’re concerned about how a recession would impact your retirement plan.
The disadvantage of this technique is that when the markets rebound, you’ll only get a moderate return.
3. Get more aggressive
If you don’t expect to retire within the next 10 years, you may increase your retirement contributions to improve your results later.
Investor pessimism is fueling today’s depressed stock prices. However, there are several strong firms that can overcome inflation or recession and emerge stronger on the other side. Buying shares in those businesses at current low share prices might be a smart move over time.
You can invest in these companies through dividend funds that screen for trustworthiness, blue-chip funds, or the S&P 500.