What should I do with my 401(k) right now?

This is a really uncertain time for all of us investors. We have all seen our 401(k) accounts take a substantial hit. Although the market is showing signs of recovery these days, there really is no telling where it will go tomorrow or the day after. That doesn’t diminish the feelings of loss, anxiety,and scarcity that accompany this reality though. In an effort to be of service and to serve as a guiding force for all of you reading this, I wanted to put together some recommendations as to how to specifically address the question of what to do with your retirement accounts.

If you’re 20+ years from retirement, then you should take comfort in knowing that you are likely the least affected by this market downturn. If the past is any indicator of how the next 30 years are going to pan out, then you have a substantial return of invested capital to look forward to. Your key to success is going to be two-fold: focusing on what you’re contributing and your asset allocation.

If you are still employed right now, this self-isolation has probably had the unintended effect of reducing your monthly expenses. Now is a good time to ask yourself whether you’ve been spending excessively and if your expenses align with your values. If you find that you may actually have more available money every month, then it’s a good time to increase your 401(k) contributions. ou should aim to contribute at least 10-15% of your salary to retirement. Once the world is right side up again, you’ll have had some time to adjust to less take-home pay and likely won’t miss it at all.

It’s also a good time to review your investment mix (aka your asset allocation) and see if you’ve been taking enough risk. Your 401(k) plan administrator should have a basic tool available on the website to see if you’re on track for retirement in terms of your asset allocation and the amount you’re contributing. If you find that your asset allocation is off, then consider re-allocating what you’re invested in and changing the funds you’re contributing to on an ongoing basis.

If you’re 10-20 years from retirement, you should be focused on honing in on your risk tolerance and risk capacity. This is going to be the biggest key to success from a quantitative and behavioral standpoint as your investment time horizon is shorter and you have less room for error- either from jumping in and out of the market due to being scared of losses or from being invested too conservatively and not earning enough return. You still have a long-term investment time horizon and can recover from short-term losses provided you act appropriately.

If you’re <10 years from retirement, then you should really consider working with a CERTIFIED FINANCIAL PLANNER certificant. They can help you make really crucial investment, savings, risk, and insurance management decisions that can set you up for a successful retirement. I recommend that anyone imminently approaching retirement hire a professional to advise them and take the stress out of knowing whether you’ve saved enough for your golden years.

The key for you is to not make any rash investment decisions due to anxiety or feelings of scarcity. You have plenty of time to make good decisions, but less time to recover from bad ones. That means leaving your 401(k) alone unless you are making a quantitatively-informed decision aka one based on facts and not fear.

Do you have any other questions about what to do with your 401(k)? Reach out and we can discuss!

Financial Planning, Investing




What should I do with my 401(k) right now?

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