What Should I Do With My 401(k) Right Now?

The coronavirus pandemic has prompted A LOT of people from all walks of life to ask me this question. Clients, prospective clients, buddies, even people on social media. The 401(k) is generally the largest asset for many Americans, other than their primary residence if they happen to own one. Over 55% of the American workforce participates in a 401(k) or some other kind of qualified retirement plan. It’s during times such as these that your retirement plan can venture to the forefront of your mind, which I totally understand.

We’ve seen most of the major stock market indices fall close to 40% in less than a month, then rebound nearly 20% in the last 3 days (March 24–­March 26). To say it’s been a roller coaster recently doesn’t do the recent stock market activity justice.

Essentially, I’ve been asked, “Hey Rockie, what should I do with my 401(k) right now?”

It’s a great question. Should you sell everything and wait for the dust to settle? Should you just sit tight? Should you accelerate your 2020 contributions while the stock markets are down? Should you stop contributing altogether?

Today, I’d like to give you three tips to consider regarding what to do with your 401(k) right now.

  1. Know EXACTLY how much risk you’re taking with your 401(k) investments.
  2. Keep contributing if you can. 
  3. Position yourself for the eventual recovery within the context of your investment risk tolerance.

Alright, let’s take a closer look at all 3.  

Know Exactly How Much Risk You’re Comfortable Taking With Your Investments

Here’s an easy way to figure out how much risk you’re comfortable taking. While it’s not a scientific way to determine your investment risk tolerance, think of it like this:

On a scale of 1 to 10 (10 being highest risk) where would you say you fall? Whatever number you just thought of, multiply it by 10 to get the percentage you might want to put into stocks. For example, if you just thought of the number 7, then maybe having 70% of your 401(k) in stocks is a good idea for you. On the flip side, if you thought of the number 3, then you may want to have 30% of your 401(k) in stocks.

This method isn’t the final word in how to allocate your investments, but it’s a decent starting point.

Also, most 401(k) plans I run into these days have easy access to pertinent research on each investment option within the plan. As you’re looking through your investment options, look for something that says “fact sheet” or “research report” or, “Learn more,” and you might find a picture like this:

While simple, these types of charts can be very helpful.

If you need any help figuring out how much risk you are fully comfortable with, feel free to reach out to me. It doesn’t cost a dime to chat/email/text/Zoom call with me.

Keep Contributing If You Can

I need to stress if you can here. If you’re contributing $1,000/month into your 401(k), and you need that $1,000 to pay your mortgage or keep the lights on, then by all means, please stop contributing to your 401(k). However, if your income remains stable, and you have a decent emergency fund in the bank, then keeping your contributions going while the stock markets are down is a wonderful idea.

Position Yourself For The Eventual Recovery Within The Context Of Your Risk Tolerance

“The beginning (of stock market declines) is always different, but the ending is always the same.” —Carl Richards

Each and every time stocks have fallen, they have not only recovered, but have grown to new highs. Every. Single. Time. Could this time be different? Sure, it’s possible. However, it’s unlikely this is going to be the first time in stock market history that stocks will go down and stay down forever.

With that said, after you’ve decided on how much risk you’re willing to take with your 401(k), a good next step is to position your investments and future contributions to take advantage of the eventual stock market recovery.* It’s hard to grow your money at any meaningful clip sitting on 100% bonds. Or 100% the stable principle fund. However, if you’re a very conservative investor, then maybe that’s exactly what you should do.

I’m not telling you to go all in here. This isn’t a poker table. Once you figure out how much risk you want to take, make the decision as to how you want to allocate to stocks for the eventual recovery.

These are just a few things that have been on my mind lately about 401(k) accounts. I hope you found this post helpful and valuable.

As always, don’t hesitate to reach out if you have questions about your 401(k). Or any investment account for that matter.

*While stocks have always recovered, there is no guarantee that stocks will recover this time. I cannot see into the future, nor do I claim to know which direction stocks are headed.

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