This Is 'the Worst Thing You Can Do' to Your 401(k) Right Now
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President Donald Trump’s tariff broadsides plus corporate earnings that suggest a cooling economy have roiled the market in recent days. While the impulse to take your money and run is understandable, it’s also misguided.
It might be tempting to pull money out of the market when you see headlines about tumbling stock prices. But it’s important to remember that financial plans — whether developed by a pro or generated by a robo-advisor — are meant to be followed when markets go down as well as up.
“The main thing you want to do in times of weakness is nothing,” says Ross Mayfield, an investment strategist at Baird. “The worst thing you can do is check your account daily, because those paper losses can spur real action,” he adds, by prompting you to panic and make rash choices.
Continuing to contribute when stock prices are sliding gives you the chance to buy assets that could recover their value and continue to grow, says Emily Safford, vice president and wealth advisor at Girard, a Univest Wealth Division.
“A near-term pullback is OK, and even an opportunity to add a bit more,” she says.
While it can be painful to see losses, acting on them just increases the likelihood that you’ll lock them in. An analysis by J.P. Morgan Asset Management found that, over the past 20 years, seven of the market's best days occurred within 15 days of one of the market's worst 10 days. If you panicked and sold at a loss on those negative days, you likely would have missed out on the big gains that followed.
While 10 trading days might not sound like very much — especially over the course of 20 years — investors who missed out on those 10 big recovery days had returns that were only about half as good as investors who stuck out the lows.
If you never think about your 401(k) except when faced with a parade of scary headlines, you might even consider this volatility a good wake-up call to check in on your retirement accounts.
However, it's probably not a good idea to peek at your 401(k) balance today. Instead, mark your calendar for a date a few weeks out so you won't be tempted to make any of the moves experts warn against doing when the day's performance is hair-raising. Market downturns are also a good opportunity to evaluate your financial position more broadly, Safford says.
“Focus on cash flow and near-term needs,” she says. For instance, do you have an emergency fund? Do you have high-interest debt you should be paying down in case you have a loss of income or an unexpected expense? A moment of panic can become a good opportunity for financial self-reflection.
How often should you check your retirement accounts?
Ideally, you should have a schedule for looking at your retirement savings, since peeking at your 401(k) too often — or when you’re in panic mode — might tempt you to make changes that aren’t justified by your long-term financial plans.
Setting aside time twice a year to go over your 401(k) and other retirement accounts gives you the chance to adjust what you need without going overboard, Heather Winston, director of financial planning and advice at Principal, told Money earlier. “If you’re looking with a lot of frequency, you may then take action that's unnecessary,” she said.
Other experts say a good frequency to aim for is once every three months or so. Whatever timeline you choose, there are a few things you should focus on when you log into your 401(k), IRA or other accounts.
Checking the balance can give you a sense of how on-track you are when it comes to saving for retirement. Evaluating your contributions across all your accounts, if you have more than one, can confirm that you’re within IRS rules about pre-tax retirement account contributions. Looking at your expenses can help you determine if you’re paying too much in fees.
Looking at what stocks or funds you’re holding gives you the opportunity to make sure your allocations are still where you want them to be, Mayfield says.
“Over the last five years, stocks have obviously done extremely well, while bonds have struggled,” he says. If you haven’t been rebalancing your portfolio regularly during that time, “Your allocation may have moved dramatically towards equities,” meaning that you could be exposed to more risk than you really want to be.
“Bottom line, don't panic with all this volatility,” says Tara Lawson, vice president and wealth strategist at US Bank Private Wealth Management. “Don’t be changing your allocation or changing how much you're contributing to retirement because of something you saw in the news.”
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