How to Protect Your 401(k) from a Coronavirus-Driven Market
The Coronavirus pandemic has unfortunately put many people’s health, and finances in danger. From major corporations to small and mid-sized businesses, operations have been halted, companies have lost business, and many people are out of work. As a result, the stock market has hit an all time low since it’s record high just back in February, and 401(k)s and other retirement savings are cause for concern.
But it’s important to note that money is not yet lost until investments are sold, so even if an account balance is lower now due to the market downturn, there are still ways you can protect investments. Here are a few tips on what to do right now with your 401(k).
Don’t Touch It
There’s a reason planning for retirement is so important, and when doing so, financial advisors should typically incorporate risks of market volatility and potential downturns when drafting financial plans and portfolio asset allocations. With the panic of watching the market right now, it can be instinctual to pull money out of your plan. But you should refrain from withdrawing from retirement portfolios as to not deflate any future returns. As long as you’re not planning to retire in the next couple of years, you have plenty of time to make up your losses, and then some. So try not to speculate on emotion, and leave your money where it is.
Keep Contributing to Your Plan
Many investors use drops in the market as an opportunity to buy into equities and wait for them to rebound, so you should keep contributing to your 401(k) as usual. And if your employer matches retirement contributions, stopping would essentially mean you’re giving up free money. However, with these complicated times, there are people already unsure about where their next paycheck is coming from, or when. Continuing work is one way to avoid withdrawing from retirement assets, and keeps a consistent flow of contribution to it. If you’re having trouble with bills or are unsure about your job status, you might be better off stopping retirement contributions temporarily to free up more income, which leads into the next point.
Borrowing From Your 401(k)
With the urge to limit the spread of the virus through social distancing, many people are finding themselves experiencing some financial strain. The market has swept savings, jobs have been lost or deemed nonessential, and there’s an unknown timeline of when things will recover. If you’re considering dipping into your retirement savings to pay bills, though some have resorted to that when cash flow is tight, it’s not a great option for covering basic living expenses. Along with pulling money out of your 401(k), it’s best to wait as more relief efforts are being made everyday, such as tax filings being pushed back, and the stimulus package congress is trying to approve to send checks to qualifying Americans. If you’re still unsure what the best option is for you, it may be in your best interest to speak with your financial advisor before moving forward.
Rebalancing Your Portfolio
It’s easy to act out of speculation and emotion in a time like this, but it’s best to stay consistent and level headed financially as to stay on the right track. Your asset allocation should’ve been appropriate for your risk tolerance before the coronavirus outbreak, so it wouldn’t make sense to change your investing strategy to something lower-risk right now. Instead, it may be a good time to rebalance your portfolio and get back on track with your target asset allocation.
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