The last month of our lives has been quite an experience. Most of the leisure activities we have become accustomed to have been taken away from us for the foreseeable future. We are being asked to stay in our homes because of a potentially deadly virus making its way through our communities.
The Coronavirus and the shutdown of many parts of our economy has created panic in the stock market. We are experiencing volatility in the market that is being compared to some of the most extreme stock market crashes in history including 2008, 1987, and 1929. Our team has put together some content over the past couple of weeks attempting to put the markets in perspective and make sense of all of the volatility. This post is going to focus on how you should be thinking about the impact on your 401k.
If you’ve taken the time to log in and look at your 401k, I’m sure you have noticed a significant drop in value since the last time you logged in. Regardless of whether you’ve looked or not, your account has most likely experienced some impact. Upon logging in or receiving a statement with a decrease in value, we often have two knee-jerk reactions:
- Sell everything and move it to the money market.
- Stop contributing until the market comes back.
It makes sense, right? Why wouldn’t you sell something that has lost money in the last few weeks? Furthermore, why would you buy something like that?
Well, hold on. Let’s think about this for a minute. Successful investing goes against our natural intuitions. We are wired to think that we should run from an investment when it is experiencing a downturn. The reality is that all of these downturns could ultimately become great buying opportunities and terrible selling opportunities.
To provide you with a relatable example, let’s say you look at some shoes you want on Amazon and they are 20% cheaper than they were when you looked last week. Would you buy them now or wait until the price goes back up before you buy them? The same logic should apply to investing. Most likely, the price will go back up and you’ll be in a better position because you will accumulate more shares during the downturn. If your cash flow permits, there is no better time than now to increase your contribution to your 401k.
Finally, it is a good time to take a look at how your investments are allocated, especially if you are within 5 years of retirement. The market has not had a major selloff like this since 2008. Your situation may have changed since then and no matter how old you are, you’re 12 years closer to retirement than you were then. Times like this are great opportunities to step back, take a look at your asset allocation, and make sure it is still in line with your risk tolerance. We are here to help if you have questions. In the meantime, stay healthy and don’t panic. You’ll be rewarded in the long run.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information.
The views and opinions expressed herein are those of the speaker or writer and do not necessarily reflect the views of Alliance Wealth Advisors, LLC. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results. Diversification does not guarantee a profit or protect against loss in a declining financial market. All indices are unmanaged and may not be invested into directly.