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Published: Jul 20, 2020 7 min read
Kiersten Essenpreis for Money

Coronavirus cases are surging again in many parts of the country. Because the pandemic hobbled the stock market in March, you may once again be wondering: “Will my retirement savings be okay?”

The average 401(k) balance shrank by 19% in the first quarter of 2020, according to Fidelity Investments. This came as the S&P 500 dropped 12.5% over the month of March.

People took notice — not action. In the first two weeks of April, Fidelity saw a 12% increase in daily activity from workers who have 401(k) accounts with the company, and a 50% increase in engagement with the online learning center, the company tells Money.

But most people weren’t looking to stop their contributions or even change their investments. They were just looking for some reassurance that they were still on the right path, says Katie Taylor, vice president of Thought Leadership at Fidelity Investments. And that’s a good thing, she adds. For one, the Standard & Poor's 500 has recovered its losses for the year.

“If you have the ability to save in a 401(k) through your workplace, regardless of what's going on in the market — or even the world — it’s always a good idea,” Taylor says. Volatility may well return, but here's why it's important to stay the course:

The Market Will Rebound

We get it — it can be scary to log into your retirement account and see a smaller balance. But don’t be married to those numbers and try not to have an emotional reaction to market movements, says Chad Parks, founder and CEO of Ubiquity Retirement + Savings, which offers retirement savings plans for small businesses.

And when the market does drop and your balance does take a hit, remember you’re not alone.

“It wasn’t like you made a mistake — it’s just a function of the market,” Parks says. “Markets are volatile.”

That means that markets also rebound. Parks recommends checking out what your balance was in 2008 and 2009 during that last recession, if you had a 401(k) at the time. You’ll likely see that your balance in general is up now compared to then, which illustrates why sitting out a market recovery in cash can cost you. (J.P. Morgan Asset Management found that if you missed the market’s 10 best days over the last 20 days, your overall return was halved.)

Sure, you might not notice that increase if you’re looking at your balance all the time, but it’s like the difference between grandparents and parents, Parks says: If grandparents see their grandchildren once or twice a year, they’re going to notice how much they’ve grown, but parents won’t note the difference as much because they see the kids everyday. (Pro tip: while it can be tempting in volatile markets, it's not necessary nor advisable to check your 401(k) balance constantly.)

Over the long term, markets will generally take care of you,” Parks adds.

You Can Still Protect Your Investments

Just because it will likely cost you to pull your money out of the market doesn’t mean you shouldn’t protect yourself against the volatility that could come with more virus cases and the sense that the pandemic is out of control.

“If you're looking to retire in the next five years, you probably want to make some adjustments to your strategy to eliminate some of the risk,” says Josh Simpson, financial advisor with Lake Advisory Group.

Sandy Villere, portfolio manager of the Villere Balanced Fund, likes a blend of about 60% in stocks and 40% in bonds for those within five years of retirement. It's tough to make money in bonds with interest rates so low, but that money will be there to protect you, he adds. (That is, you won't lose it.) Villere still recommends a balance of 60% stocks (including some large-cap dividend stocks) and 40% bonds for people in retirement — he doesn't like having more than 50% in fixed income because of how low interest rates are right now.

"[People] have to have some growth to beat inflation," Villere adds.

If you're between five and 10 years out from retirement, Villere advises shifting to about 70% stocks and 30% bonds. Parks is more conservative: With a less-than-10-years-to-retirement time frame, Parks likes 30% or less exposure to equities, with a plan to reduce that the closer you get to retiring (depending on your specific situation). Investing the other 70% is a challenge in a low-interest-rate environment, he says, but people can consider money market, stable value and fixed income investments, along with lifetime income options.

If you’re further out from needing to make retirement withdrawals — say, more than 10 years — a little more risk in your portfolio will let you experience market gains, Simpson says. “When you have a huge decrease in the market, within 10 years you usually see you not only made up what you lost, but that you’ll actually be ahead of where you started,” Simpson adds.

For those in this time frame, Villere thinks it's generally advisable for portfolios to have about 85 to 95% in stocks and 10 to 15% in bonds.

Dollar-cost averaging — like most do with their 401(k)s through regular paycheck deductions — tends to work out really favorably when you’re younger in your career, Fidelity's Taylor adds. That strategy entails investing in regular intervals over time, so you’re not dropping a bunch of money into the market when prices are high.

In short: don’t panic, check your asset allocation and rebalance your portfolio if need be. The key to investing for retirement is to just keep investing in general, Simpson says.

“You’re going to see ups and downs in the stock market; that’s just how it goes,” he adds. “We’ll see growth—it’s just going to be slower going forward until everything gets worked out with this virus.”

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