How to Think About Your 401(k) and Navigate a Volatile Market, According to the Experts

Okay, so you just checked your 401(k) and it doesn’t look right. In fact, it looks pretty awful.

But don’t worry, you’re not alone.

With the bond market experiencing one of the worst year Historically and the S&P 500 down more than 24% since January, most US investors are feeling the pain.

And as predicted by a impending recession-or “Something Worse”—Continuing to flood in from Wall Street, even the most seasoned investors are landing.

With this in mind, Luck reached out to several top asset managers for some tips on how to best navigate these tough markets and preserve the value of your 401(k). Here’s what they had to say.

‘Keep calm and invest in’

The first mistake most people make when they see a big loss in their retirement account is to rush to sell.

Everyone has heard the old adage “buy low, sell high”, but in reality, it’s easier said than done.

Kimberly Nelson, an advisor at asset management firm Coastal Bridge Advisors, says: “While financial advisors preach ‘buy low and sell high,’ investors’ emotions tempt to act. vi vice versa. Luck. “The urge to do something to prevent devastation in your retirement account during a market retracement, recession, or full-blown bear market can be hard to ignore.”

Nelson believes investors should avoid selling off their 401(k) holdings at this point as the stock is down more than 24% this year and timing to enter and exit the market can be tricky. a challenge.

“Often acting after a bear market won’t help protect your nest,” says Nelson. “Getting out of the market means you have to get your exit points right and your re-entry right—market timing is almost always a chore and not the right strategy for building success. lasting wealth.”

The executive financial analyst, who has been a financial advisor for more than two decades, has a simple tip for those who are worried about their 401(k): “Calm down and invest in it. !”

“[K]Taking the right perspective and taking the right kinds of actions can help ease investor sentiment on this difficult road,” she said. “Don’t worry about the day-to-day volatility of your portfolio — keep your long-term goals in mind and understand that time and time again, the market has proven its ability to rise from the ashes. (and beyond) over time. “

Nelson believes that investors, and especially younger investors, should focus on finding quality stocks at a fair price when the market is down, rather than selling to try and stop them. prevent further losses.

“I believe buying today is a better time than eight months ago, and if you are a long-term investor, buying quality names at today’s prices and continuing to add to your portfolio every month can put you on a very successful path into the future,” she said.

Cameron Starr, a financial advisor at Gratus Capital, echoed Nelson’s comments.

“We believe it is important to counter the reaction to the market by selling and going for cash,” Starr said. Luck.

He believes the stock and bond markets will eventually recover after a year of decline, meaning most long-term investors will never realize the current loss on 401(k) holdings. theirs unless they sell now.

On top of that, he noted that people who sold stocks to keep cash weren’t just affected by the bear market – they also lost about 8% of their money to inflation and 401(k) losses. cannot be used to offset taxes.

IRS will also assess a 10% penalty on any funds withdrawn from a 401(k) account before age 59.5, which can be quite costly.

“While it’s stressful to see assets fall, you have a ‘force’ on time and resilience to these assets. Allow your portfolio time to recover, and if you have the ability to continue investing with any excess cash, do so,” Starr recommends.

Advice for retirees

For those nearing retirement, the bond and stock market sinks can be especially devastating.

It makes sense to reassess your risk tolerance as you approach retirement, says Gratus Capital’s Starr, arguing that investing more conservatively may be wise for older Americans.

He recommends looking at target date fund that will automatically reduce portfolio risk as you approach retirement. For example, for someone planning to retire in 2045, a target date fund invests in a higher-risk portfolio that offers more opportunities for long-term returns right from the start. Soon. Then, as the years pass, the portfolio automatically readjusts to allocate less risk.

But for retirees who worry that the market will continue to fall and are looking to protect their savings right now, Morgan Stanley Wealth Management shared some tips this week.

“Consider using bond market volatility to lock in solid short-term yields as we wait for the stock market to rally,” Chief Investment Officer Lisa Shalett wrote in a research note on Thursday. Two.

Earnings on United States one-year treasury bonds rose more than 4% on Wednesday. This number is 10 times higher than in January. Investors can protect some of their retirement savings from inflation and stock market losses by using short-term bonds like these, Shalett said.

Positioning for a volatile market

While wealth management experts believe you should almost never pull out of your 401(k), and most advise against reducing your contributions even if the market is having a year. going down, many investors still decide that just enough is enough.

One Morgan Stanley’s new survey found that 31% of Americans are planning to reduce their 401(k) plan contributions this year.

If you’re in this camp and have a little extra money to invest this year after reducing your 401(k) contributions, UBS Global Wealth Management’s chief investment officer, Mark Haefele, has shared some tips for getting help you get the most out of it. markets in a research note Wednesday.

First, he recommends increasing exposure to value stocks — or stocks that trade at lower prices based on fundamentals like sales, earnings, or net income relative to other stocks. shares in the same industry.

“The combination of higher inflation and rising interest rates tends to favor value stocks over growth stocks,” Haefele writes.

According to UBS research, value stocks have outperformed growth stocks by more than 4 percentage points in the 12 months following the Federal Reserve’s last rate hike in previous business cycles. . And with inflation showing signs of peaking, many experts believe the Fed can pause Its interest rate hikes later this year or early next year, set up value stocks for a sharp rally.

Second, Haefele recommends that investors look to energy stocks for short-term gains as he sees oil prices hitting a peak of $110 per barrel by year-end, which should support “bullish momentum.” more” in these names.

The CIO went on to say that investors may also consider adding “defensiveness” from consumer staples and “safe-haven” currencies like the Swiss Franc.

And finally, he argues that “unrelated hedge fund strategies” are likely to outperform the broader market in the future, and says investors can use mixed funds. hedge funds, like HFRI . Macro Fundfor industry exposure.

“The high inflation environment and rising rates have resulted in stocks and bonds moving together, and both are down year-to-date. But this difficult environment for ‘traditional’ diversification has made it easy for hedge funds, especially macro funds, to take positions across markets, instruments and types. assets to navigate changes in the macro environment and increase uncertainty,” writes Haefele.

Avoid checking your account balance obsessively

It’s hard not to look at your 401(k) when your account balance seems to shrink every day, but experts say checking your balance too often can lead to decision-making. bad.

“In my opinion, there is no value in reviewing your account on a daily basis,” says Nelson of Coastal Bridge Advisors Luck. “I don’t even think you should watch it weekly or monthly. Long-term assets should be reviewed at most once a quarter. Tracking your 401k drop each day, the lower swinging market can leave you vulnerable to the emotional decisions you’re trying to avoid. ”


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