Posted by Fletcher Accounting and Tax Service Inc.

How To Recession Proof Your 401K

How To Recession Proof Your 401K

According to reports, the average balance of 401(k) in retirement plans decreases by 10%. Your 401(k) account could have suffered a similar loss.

As we consciously approach the later part of the economic cycle, with many people expecting a recession soon enough, we can expect equity markets to be more volatile. Here is a management approach to 401(k) that has proven to be successful in previous volatile periods. By following these suggestions, you can run a recession test on your 401(k) account.

Do Not Stop Contributing

Participants in the 401(k) plan often tell me when equity markets are falling, it’s a perfect time to stop making 401(k) contributions. Many mistakenly think that emerging markets are good for investment, but falling markets are not. They believe that if they invest in low stock markets, they will only lose money.

The advantages of the average dollar cost become evident as markets fall as their contributions begin to buy more stocks of mutual funds at lower prices. Continue to contribute at least the same amount, if not more, when the markets are decreasing. Remember, you should try to buy cheap and sell expensive!

Resist The Desire To Sell

Many participants feel pain when they see the value of their 401(k) accounts disappear and believe that the only way to stop the bleeding is to sell before they lose even more. Reaching losses in this way is one of the main reasons why most participants get less than half of the returns from the funds they invest in on average.

You are tagged as a long-term investor in your 401(k) pension plan until you reach five years of retirement. As a long-term investor, you should not worry about short-term market fluctuations. The shares are not sold when the markets fall; It's a bad investment strategy.

Never Try To Mark the Time In The Markets

Some investors think they can sell their shares before the market drops and jumps before getting up again. Further studies have proven that this activity, called market timing, does not work. Timers on the market must be lucky enough to sell near the top of the market and are also lucky enough to choose the right time to buy back stocks near the base of the market. Very few investors get time correctly.

It remains on the Volatile course when the market is fluctuating; there are times when to make big changes in investment allocations.

Remain Diversified

If you operate a diversified account balance, you will experience fewer losses than market averages. If the Dow Jones Industrial Average decreased by 5%, a well-diversified 401(k) account could lose only half of this. Volatile times are not good times to concentrate many resources on a few investments. Stand or diversify appropriately based on age and ability to take risks.

Do Not Look At The Balance Of Your Account

Our instinct makes us look at our 401(k) account balance when we feel the market has collapsed. We want to make sure we still have something to left in it.

The big negative moments of the market are the worst times to check your account balance. Who among us would not mind seeing that we lost 20% or more of our pension savings in one day? If you know you'll be troubled by a decline in your 401(k) account, do not think about the days when markets fall. Do the opposite: observe your balance only in the big days.

Stay With Your Plan

Markets that move quickly increasing or decreasing are not the time to make big changes in savings and investment plans. Emotions tend to color perceptions high during these periods, leading to bad decisions. Know your investment strategy and make changes to the tasks once a year. A good time to do it is after the end of the year when working on taxes.

Ask For Help If You Need

Before making major changes to your investment and economic strategy, contact a consultant. Almost all 401(k) plan participants have access to a financial advisor through their plan. For the most part, this conversation is free. If you are scared, confused, angry or do not know what to do, talk to your counselor. A 10-minute conversation can help you feel better about what is happening in the markets and how you should react.

Hang in there and consult with an advisor before making any changes.

Fletcher Accounting and Tax Service Inc.
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