Four Reasons Not To Panic About Your Company's 401(k) When Markets Fall

Forbes

4 days ago

Stuart Robertson is the CEO and President of ShareBuilder 401k, a technology-forward 401(k) provider for small- to mid-sized companies.
In the past several months, we have witnessed the stock market go up and down. As a leader, you might be asking, "Should I be concerned about my 401(k), and should I be doing something different during volatile times?" Some of your employees are likely asking the very same thing, whether they have spoken to you about it or not.
Here's some perspective that can help answer these questions with a focus on how to think about your 401(k) during a market dip.
Why You (And Your Team) Shouldn't Panic
Market fluctuations are a normal part of investing. While it's natural for some to feel anxious when their 401(k) loses value with a market drop, it is essential to maintain a long-term perspective. Here's why you shouldn't let market downturns derail your retirement goals and how they may help you and your employees be better off come retirement:
Always remember the adage, "buy low and sell high." This means that when the market is down, it may be a better time to invest in the market vs. when it is higher. That's because you can buy more shares at a lower cost when prices are down, which could provide growth opportunities for long-term investors.
Unfortunately, when the market declines, some investors panic and sell their shares at a low, only to jump back in when the market recovers. But buying at a higher price can be disastrous to building a nest egg. You can consider setting up automatic investing, also known as "dollar cost averaging," with your 401(k) so you buy more shares when prices are down and fewer when times are good. This can make it easier to stick with your investment strategy and may help improve your returns over the long haul.
If you're decades away from retirement, you have ample time to recover from market downturns and build a bigger nest egg. As you approach or reach retirement, you can consider shifting your portfolio to a more conservative approach to experience less volatility and help protect your principal.
Remember, you don't lose money unless you sell shares below the price at which you bought. By waiting out a down market, nothing is "lost," and you benefit from not selling at a low price. When you have a decade or more until you might use the money, you have time on your side to recover.
A well-diversified portfolio can offer more opportunities for returns while taking on less market risk to help weather market storms. By spreading your investments across different asset classes, you reduce your exposure to any single investment. While some assets may decline in value, others may rise, helping to offset losses.
Compounding can turn relatively modest returns into substantial sums over time. The growth of share prices and reinvestment of interest and dividends over decades can be incredibly powerful in growing your nest egg. This is a reassuring fact that underscores the importance of starting to save for retirement early. While a market downturn may be a temporary setback, the power of compounding may outweigh it in the long run, providing a sense of security about your long-term investments.
Key Insights For Employers
For employers looking to help their employees during turbulent times, it's good to share with your employees, even those nearing retirement age, the value of taking a long-term approach to investing. Markets go up, and markets go down. This has always been the case. Since 1900, U.S. recessions have lasted, on average, less than two years.
Over time, the market rebounded, and many Americans who stuck with their long-term investing strategy still had comfortable nest eggs. You may want to adjust your investment strategy if you can't sleep at night, but remind employees that it's generally a bad idea to make a drastic decision, like jumping out of the markets completely, because of a downturn.
In addition, ask your 401(k) provider to present to your team on the subject and share added educational resources. With good information in hand, you and your employees can navigate the instability with greater confidence and be in much better shape to help your—and their—golden years be, in fact, golden.
Remember, market fluctuations, like changes in the weather, are unpredictable and inevitable. There are no guarantees. Just know that when markets are down, you can buy more at a lower price. As companies grow and economies improve, values increase, which may mean better returns. Try to ingrain: "Buy low and sell high." By understanding investing principles and maintaining a long-term perspective, you can help your employees navigate these challenges and stay on track to achieve your own retirement goals, too.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?