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Five 401(k) reminders during COVID-19 sharp market turns

Apr 03, 2020

By Blake Faust, CFP®, AIF®, CRPS®, Wipfli Financial Advisors

It's no secret that the market has taken a deep downturn as a result of COVID-19 uncertainty and that means many investors are worried about their 401(k).

So, what should you do with your 401(k) account during these trying and unprecedented times? Here are a few helpful reminders:

Remember what you’re saving for

401(k) plans are meant to be a tax-advantaged vehicle for employees to save for their eventual retirement. With pensions becoming a thing of the past and Social Security benefits likely to only cover a portion of expenses, participants are beginning to recognize their 401(k) will likely be their largest source of income in retirement.[1]

It’s easy to get caught up on the day-to-day market movements but saving for retirement requires one to take the long view.

Ask yourself, have any of the following factors changed significantly over the past few weeks?

  • Your timeline until retirement?
  • Your goals while in retirement?
  • Your appetite for risk?

If not, don’t let a knee-jerk reaction to short-term market events derail your long-term plan.

Stay invested – markets reward disciplined investors

David Booth, Founder of Dimensional Funds, once said “the important thing about an investment philosophy is that you have one you can stick with.” This means finding a strategy that you’re comfortable with during the good times and the bad.

History has shown markets rise over time – not without its share of bumps and bruises along the way, of course.

Even when events caused disruption, and those that lived through them likely felt “this time is different,” eventually fears subsided and those that stayed the course benefited from the recovery that followed.

Review your investment allocation

Market fluctuations offer an opportune time to review your overall investment allocation. Are you appropriately balanced for your current and future situation? Generally, younger participants should concentrate on growing their balances while those nearing retirement should focus on conserving what they have already saved.

While you don’t typically want to change your allocation during a market downturn, it may be a good time re-evaluate your investment strategy and risk tolerance going forward.

Rebalance your portfolio

As different areas of the market rise and fall, rebalancing is a healthy way to maintain your preferred level of risk/reward while also taking a disciplined approach to the old stock market adage “buy low, sell high.”

Take this hypothetical example: You started February at 60% stocks and 40% bonds and now your stock percentage is down to 53% and bonds are at 47%. By trimming 7% off your bond allocation and investing that in stocks, you’re selling high (bonds) and buying low (stocks). It also means you should be in a better position to capture stock growth when the market does recover. 

It’s advised to rebalance at least annually though, more often, such as quarterly, may be appropriate. Many 401(k) providers offer automatic rebalancing, but you can also choose to manually do this between scheduled times.

Speak with your advisor

It’s a good idea to reach out to your plan’s financial advisor with any questions. While no one can predict when the market will rebound, they can assist you in making smart, goals-based decisions as well as steer you away from taking critical missteps.

Connect with our team here.


[1]2018 U.S. 401(k) participant survey conducted by Logica Research (formerly Koski Research) for Schwab Retirement Plan Services, Inc.

Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC); however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services and fees is set forth in Wipfli Financial’s current Form ADV Part 2A brochure, copies of which are available from Wipfli Financial upon request at no cost or at www.adviserinfo.sec.gov. Wipfli Financial does not provide tax, accounting or legal services.

Note that Wipfli LLP and Wipfli Financial, although affiliated companies, are separate entities. Wipfli Financial provides investment management and financial planning services, and does not provide tax, accounting or legal advice, or recordkeeping/plan administrative services. Services offered by Wipfli LLP, if requested by the client, will be provided under a separate and distinct engagement letter. Clients are under no obligation to engage Wipfli Financial or Wipfli LLP, and are free to choose any professional who provides similar services.

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