Retiring with a sizeable retirement fund is something you are looking forward to in the future. Until you retire, you naturally watch your money to ensure it continues to grow. You want to know it is safe, because it is not always guaranteed. Oftentimes, your retirement money is in a 410(k), but even this investment vehicle has some risk involved.
When there is a recession or market crash, your 401(k) will generate less profit and may even have a significant loss. When the major indexes suffer losses, you are probably trying to decide whether or not to keep your money in it or invest elsewhere. Here are some ideas about what you can do with your retirement money to protect it.
Leave It Alone
Many investors will tell you to leave your money where it is. After all, you do not have any actual losses until you move the money to other accounts. The stock market is volatile and normally experiences dips every few years.Historically, the stock market has always seen a rebound after some time. If you leave your money alone, you will likely recover from any losses you experience and gain even more.
Timing the market is nearly always a mistake. Trying to do so could hurt your retirement money even more by exposing it to bigger losses.
If your employer is matching your contributions, you want to continue contributing at least enough to match their maximum. It is free money and doubles your contributions—which will be nearly impossible to beat anywhere.
Taking money out of your 401(k) could be a mistake.
MeetBeagle says that you have already paid money to buy and manage the money in your 401(k), and if you sell it when there is a loss, you sold your stock for a loss. Remember that the goal of investing is to buy low and sell high.
Increase Your Contributions
A market recession could also be a time to contribute even more to your 401(k) as part of your investing strategy.
SoFi says that stock prices often decrease considerably during a recession, which means a lot more stock could be purchased at a discount.
Understand Your Risk Factor
Before you do anything with your money, you need to know what your risk factor is at the time. Your actions depend on how close you are to retiring and how much you will count on that money for income. If you are within five to 10 years of retirement, your risk factor is low—unless you already have a large balance.
A low-risk factor of around 10 percent leaves little room for guessing. You want to invest money in more stable choices such as bonds and cash options and not so much in stock.
People with a longer timeline before retiring may be able to make some changes and reinvest in other places. They still have time to recover from losses even if mistakes result in some loss. There are online tools available that can help you determine your risk factor more accurately, such as those at
Schwab and
Investopedia.
Invest Elsewhere
Although 401(k)s are a commonly used tool for retirement funds, they do not provide the best returns.
RuleOneInvesting says they often have high fees and do not invest your money in the best stocks. Another problem is that they prevent you from choosing a better stock.
Investing on your own lets you choose better stock and potentially see higher gains. To ensure better picks, you should use online indicators.
New investors have several choices when selecting a stock. Several online investment companies use robo-advisors to help you manage your investment. They use algorithms to choose the best stock for you. They are not subject to emotional whims, and make choices based on your risk factor and age. Some of them also offer the option of no minimum investment and can let you have some control over how your money is invested.
Another option you may want to look into is an annuity. An advantage is that it offers a guaranteed rate of return. Although growth depends on the stock market, the money you put into it will not lose value. This retirement tool can give you a stable amount you can count on being there when needed.
Diversify Your Portfolio
When you invest, diversify your investment money, which is one of the best hedges you can have in a recession. It means not putting all your eggs in one basket. As one sector declines, other ones are apt to grow. Choose more than one type of investment from stocks, cash, bonds, real estate, precious metals, cash value life insurance, and more. If the market goes south or stays that way, you may not see much gain, but you are not likely to lose any money.
Rebalance Your Portfolio
During a recession, it is not a good idea to watch the numbers on your 401(k)—especially on days when you know the market is down. If you do, your emotions will probably urge you to make some quick withdrawals. While the numbers can be disappointing sometimes, remember that the stock market has always eventually recovered.
Investopedia says that people that kept their money where it was in the S&P 500 Index gained 10.15 percent on average from 1957 through the end of 2022.
Most company-offered 401(k)s give you little choice about which companies you want to invest in. If you have a choice and discover that one or two stocks are doing really bad, you may be able to change and invest in some higher-performing stock. Do not put all your investment money in just a few stock choices.
Seek an Advisor
One of the best things you can do when you feel like you are losing your retirement money because of the market recession would be to talk to an advisor. They can help you remain calm and look for days when the market is up—it will come. If you need to make changes—they can show you the best stocks to buy during recession.The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
