What should I do with my 401k in a bear market?
Market downturns can make you feel like you're even more behind in your savings goals. “We believe the key thing to do is to keep your 401(k) funds invested. If you take them out of the market, you may lock in losses and could miss out on opportunities for market rebounds.”
One of the best things to do during a stock market crash or a low financial point is to stay the course and not reduce your 401(k) contributions. In fact, some believe a bear market is the right time to increase the percentage of income you funnel into your savings if you can afford it.
Having a diversified 401(k) of mutual funds or exchange-traded funds (ETFs) that invest in stocks, bonds and even cash can help protect your retirement savings in the event of an economic downturn. How much you choose to allocate to different investments depends in part on how close you are to retirement.
| Fund | Expense Ratio | 10-year average annual return |
|---|---|---|
| Fidelity Nasdaq Composite Index Fund (FNCMX) | 0.29% | 15.7% |
| Fidelity Growth Discovery Fund (FDSVX) | 0.67% | 15.8% |
| Vanguard Growth Index Fund (VIGAX) | 0.05% | 14.7% |
| Fidelity 500 Index Fund (FXAIX) | 0.015% | 13% |
Shielding your money from further market losses could be a potential benefit of a rollover. However, this may also limit your ability to recover gains when the market bounces back. During a volatile market, panic can lead you to sell your investments impulsively at rock-bottom prices.
It's a good rule of thumb to avoid making a 401(k) early withdrawal just because you're nervous about losing money in the short term. It's also not a great idea to cash out your 401(k) to pay off debt or buy a car, Harding says. Early withdrawals from a 401(k) should be only for true emergencies, he says.
If the dollar collapses, your 401(k) would lose a significant amount of value, possibly even becoming worthless. Inflation would result if the dollar collapsed, decreasing the real value of the dollar when compared to other global currencies, which in effect would reduce the value of your 401(k).
The best way to prepare your 401(k) for downturns is to make sure you have a solid investment plan in place before a crash happens. Make sure you build a well-balanced and diversified portfolio to begin with, or assess and diversify now if you have not already done so.
- Continue contributing to your 401(k) plan. First and foremost, don't abandon your retirement planning during a recession. ...
- Maintain a well-diversified portfolio. ...
- Consider investing in defensive stocks. ...
- Opt for value over growth stocks. ...
- Make room for income-producing assets.
Manage Your Retirement Resources Carefully
While retirees should in most cases be in the stock market, it can be so volatile in times of economic uncertainty. It's always wise to secure other ways to maximize your retirement resources so you don't find yourself in an unpleasant situation.
When should I cash out my 401k?
The IRS allows penalty-free withdrawals from retirement accounts after age 59½ and requires withdrawals after age 72. (These are called required minimum distributions, or RMDs). There are some exceptions to these rules for 401(k) plans and other qualified plans.
By age 40, you should have three times your annual salary already saved. By age 50, you should have six times your salary in an account.
T. Rowe Price analysis suggests that 45-year-olds should have three times their current income set aside for retirement.
A: Yes, you can freeze your 401K account through a process called vesting. Vesting means you can stop making payments into your account, while still allowing your 401K to remain invested and grow.
You can choose that as an investment within your 401k or your Rollover IRA. However, the interest rate is usually far below what you could get in another investment within the retirement account. Yes, if that option is available within your investment selections. Nearly all employers have a money market or cash option.
Investors in retirement funds may experience a decrease in the account balance during a stock market crash. The extent of the impact depends on factors such as the proportion of the portfolio allocated to stocks, the specific stocks held, and the overall market conditions.
You can withdraw your contributions (that's the original money you put into the account) tax- and penalty-free. But you'll owe ordinary income tax and a 10% penalty if you withdraw earnings (i.e. gains and dividends your investments made inside the account) from your Roth 401(k) prior to age 59 1/2.
This is where the rule of 55 comes in. If you turn 55 (or older) during the calendar year you lose or leave your job, you can begin taking distributions from your 401(k) without paying the early withdrawal penalty. However, you must still pay taxes on your withdrawals.
Deferring Social Security payments, rolling over old 401(k)s, setting up IRAs to avoid the mandatory 20% federal income tax, and keeping your capital gains taxes low are among the best strategies for reducing taxes on your 401(k) withdrawal.
We expect 2024 to be a year of diverging trends for the dollar. It will likely move lower on a broad trade-weighted basis early in the year but stabilize as the year progresses. Although we expect a general downward drift for the dollar, performance of individual currencies will likely vary widely.
Will 401k bounce back?
Retirement 401(k) account balances lost nearly one-quarter of their value in 2022, but there is still the potential for a comeback this year, one expert says. Odds are that “a rebalance, like a regular haircut, is needed,” according to Winnie Sun, a member of CNBC's Advisor Council.
Investors seeking stability in a recession often turn to investment-grade bonds. These are debt securities issued by financially strong corporations or government entities. They offer regular interest payments and a smaller risk of default, relative to bonds with lower ratings.
Bond funds, money market funds, index funds, stable value funds, and target-date funds are lower-risk options for your 401(k).
Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution. What happens if my bank fails during a recession?
| Age range | Average balance | Median balance |
|---|---|---|
| 25-34 | $30,017 | $11,357 |
| 35-44 | $76,354 | $28,318 |
| 45-54 | $142,069 | $48,301 |
| 55-64 | $207,874 | $71,168 |
