Five Things to Consider Now for Your 401(k)

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There are few times in life where doing nothing is the right strategy. Now might be one of them. We explain why.

When market swings dominate the news, it’s easy to get anxious. A sure way to heighten your concern is to check your 401(k) balance. Current market conditions can be sobering—but for most of us, this should just be one stop on a long journey.

If you can’t stand to sit tight, focus on these five steps to help channel your worries in a more productive manner:

1. Look before you leap

For many investors, moving out of equities into some other supposedly safe haven may not make sense. You know that selling low and buying high is typically the opposite of how investors strive to invest, right? Selling stocks today implies that you will be able to buy them at a lower price in the future. But do you really think you’ll be able to spot the market’s ultimate low? The market can roar back in a buying frenzy, leaving those in cash sitting on the sidelines.

2. Consider target date funds

Target date funds maintain a methodical (read that: unemotional) approach designed to invest more of your assets in equities earlier in your career, when you have more time to make up for any short-term losses. As you get closer to retirement, target date funds generally move more of your assets into fixed income and cash-like vehicles. The goal is to make your nest egg less vulnerable when you’re getting ready to tap it for retirement income.

3. Seek advice from a reputable source

If you have access to a financial planning advice provider, consider getting a second opinion before making any big changes to your asset allocation. Like target date funds, advice providers should make decisions based on scientific principles, not fear or greed.

4. Consider increasing your contributions

You may look back on this time as a missed opportunity to add to your equity holdings. Increasing your 401(k) contribution rate is almost always a good choice. Now, it may make even more sense as a cost-effective way to buy into the markets over many years.

5. Name your price

If you think you must reduce your equity holdings, make a plan for re-entry. Consider setting two prices: One that’s lower than where you sold, and another that’s higher. If the market doesn’t fall to the “smart move” price, better to buy back at the “oh, well” price than to give up growth potential.

Time is on your side

Most of us have years—perhaps even decades—when we can sell off equities. So why make any big moves now? Instead, take a moment to consider more effective and rational actions that might get better results in the long run.

Or just do nothing. This is one time when not taking action might make the most sense.

 

 

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader.

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