What Should You Do With Your 401K In A Bear Market

The number of Google searches for, “What should you do with your 401k?” has increased dramatically in the last month. The Coronavirus (COVID-19) pandemic is making a lot of people worry about their workplace retirement accounts.

The Stock Market

The stock market has skyrocketed for the last 10+ years. In fact, for every $10,000 you invested in the S&P 500 since March 2009 (the end of the Great Recession) until January 2020, you would have made a whopping $43,551!

That’s a 436% return!

S&P 500 chart from 2009 to 2020

But now that we’re in a bear market, things have changed. For many younger workers, this is really the first time they’re seeing their 401k accounts take a significant nosedive. For older employees, it’s reopening wounds from the crash of 2008.

What Is A Bear Market?

A bear market is when the stock market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.

Bear slumped over a log

So What Should You Do With Your 401k?

The short answer?

Nothing. Don’t try to time the market.

Investor psychology is weird and a major reason why people lose money in stocks.

Most people have a tendency to buy high and sell low because they’re inclined to buy when the market is performing well and sell out of fear when the market starts to drop.

No wonder only 5% of financial professionals beat the average return of the stock market. For regular people, it’s even worse at 1%.

The best advice is to just continue to invest in the market normally. A person investing $100 every week is going to beat someone trying to time the market 99 out of 100 times.

Other Ways You Can Do To Protect Yourself & Your Family

Create An Emergency Fund

Everyone should have an emergency fund. How much to put in it depends on your expenses. This is even more important now that we’re going heading towards a uncertain time period.

At the time of this writing, we don’t know how long this coronavirus crisis could last. All we know is that it’s wrecking havoc on the world economy and the United States is not spared from that.

If you’ve lost your job or had your hours significant reduced, then I’m sorry to hear that. It’s unfortunate. There’s help coming for you though as I mentioned in a recent post about the biggest relief program the government has ever passed.

Let Your Money Work For You

The Federal Reserve lowered interest rates to make borrowing easier for people and businesses who need it. That’s a good thing overall, but not so much for your savings.

If you looked at your savings account recently and checked how much interest it’s earning, don’t be surprised if it’s near 0% – the average interest rate is 0.07%.

You might as well put it under your mattress.

It’s time to change your strategy! You worked hard for your money so let that money work hard for you.

Other safe FDIC-insured banks, like CIT Bank, is offering 1.75% for their no-fee savings account, which is 25x more than average. They’re also offering a deposit bonus of up to $300.

CIT Bank Savings Builder 1.75% APY

In our CIT Bank Savings Builder review, we gave it 9.5 out of 10 stars.

The Bottom Line

It’s a crazy time right now, especially in the investment world.

We’re probably going to go down more before we go up, but looking at history as a guide, the best course of action is to continue to regularly contribute and invest in your 401k.

In the meantime, protect yourself by building an emergency fund and review how much interest the money in your savings is earning. If it’s not much, then it’s time to look for a better savings account.

About John Pham

John Pham is a personal finance expert, serial entrepreneur, and founder of The Money Ninja. He has also been fortunate enough to have appeared in the New York Times, Boston Globe, and U.S. News & World Report. John has a B.S. in Entrepreneurship and a Masters in Business Administration, both from the University of New Hampshire.

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