Key Takeaways:
- The stock market can take a downturn at any time, leaving investors concerned about the health of their 401(k) accounts.
- A market downturn isn’t a reason to panic. But it is a good time to revisit your plan, reduce unnecessary risk and stay focused on your long-term goals.
- Small adjustments like rebalancing, diversifying, and reviewing your savings strategy can help steady your 401(k).
No investor wants to see their 401(k) lose value.
When the market dips and your retirement balance takes a hit, it’s natural to feel uneasy, especially if you’ve spent years steadily contributing and watching it grow. The image of stock numbers dropping can send your mind racing: Should I move my money? Did I do something wrong? Will this delay my retirement?
Those questions are valid. And you're not alone in asking them.
The good news is that most market dips are temporary. You don’t have to avoid them to reach your long-term goals, but how you respond matters. These smart, simple steps can help you steady your 401(k), minimize risk and stay focused on your retirement savings.
Market dips are part of long-term investing. With smart planning, you can limit the impact on your retirement goals.
Step 1: Try Not to Panic
Your instinct might be to make a move.
But a word of caution: Acting on fear, rather than a plan, can make the damage worse. Pull money out of the market or drastically shift your investments today, and you could be locking in losses for tomorrow.
Remember that market swings are normal. It’s easy to forget in the moment, but market dips happen regularly, and most are temporary. Over time, the market has historically recovered and grown. If you’re investing for retirement that’s 10 or more years away, there’s still plenty of time to rebound.
Work to manage your emotions. Try setting a scheduled time to review your account, rather than checking it continuously when markets are down. If you feel anxious, talk with a financial advisor or someone you trust before making changes. Even waiting a day or two before taking action can help you avoid high-emotion decisions.
Be cautious with early withdrawals. Pulling money from your 401(k) early usually isn’t worth the cost. In most cases, you’ll owe income tax plus a 10% early withdrawal penalty if you're under age 59½. Hardship exceptions do exist, but most financial advisors agree: withdrawing should be your last resort.
Near retirement? Get guidance. If you’re within five to ten years of retirement, market losses will probably feel more urgent. This is a smart time to meet with a financial advisor who can help you reduce exposure to risk and build a drawdown strategy that supports your income needs.
A calm, balanced approach to market swings can help protect your long-term plan.
Step 2: Make Sure You’re Diversified
When markets are volatile, the balance of your portfolio becomes even more important.
A quick refresher: Diversification simply means spreading your investments across different asset types to help manage risk. Market-wide risks are hard to avoid completely. Other risks, like being too heavily invested in a single company or sector, can be reduced.
Diversifying your 401(k) helps balance the ups and downs, making it the smart play during an unpredictable market run.
Don’t rely too heavily on one asset type. Many 401(k) plans default to stock-heavy allocations, especially early in your career. But when your entire balance is tied to the stock market, you could be exposed to bigger swings than necessary. Speak with your advisor about balancing asset classes, including stocks, bonds, mutual funds, and more.
Consider a target-date fund to simplify your strategy. Not sure how to rebalance or when to shift gears? A target-date fund (TDF) might be for you. These funds are designed to adjust automatically over time, starting with growth-oriented investments and gradually becoming more conservative as your retirement date approaches. If your 401(k) offers TDFs, this can be an effective way to stay diversified.
Revisit your investment mix regularly. Diversification isn’t a one-time setup. Over time, market changes can throw your balance off without you realizing it. Reviewing your allocations after big market moves can help you stay aligned with your goals.
Is your portfolio diversified? Now is the time to check.
Step 3: Focus on What You Can Control
When the market feels unpredictable, it’s easy to feel powerless.
But the truth is, you have more control over your retirement savings than you might think. While you can’t predict when stocks will go up or down, you can make smart choices about how much you save, how often you check in and how your plan is structured.
Continue to contribute if you can. When the market dips, it’s natural to wonder if you should hit pause on your 401(k) contributions. But staying consistent can actually work to your advantage. You’re buying investments at lower prices, which may set you up for more growth when the market recovers.
Review your fees. Over time, fees can quietly eat into your returns. Take a moment to check the expense ratios on your funds, along with any administrative or advisory fees. Even small reductions can make a difference over decades.
Revisit your goals and your backup plan. Pressure from a downturn can expose weak spots in your retirement plan or confirm that you’re on the right track. Are your goals realistic given your timeline? Do you have enough savings outside your 401(k) to ride short-term bumps? This is your chance to adjust before small cracks become bigger problems.
The market may be outside your control, but that doesn’t mean everything is.
Let’s Make Sure Your 401(k) Is Ready for What’s Ahead
The market may be uncertain, but your retirement plan doesn’t have to be. Speak with a Comerica team member today for help reviewing your current strategy, rebalancing your investments and planning for the future.
This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, compliance or accounting advice. You should consult your own tax, legal, compliance and accounting advisors before engaging in any transaction.
This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.
