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.