Bumpy financial markets have you worried about 401(k)? Financial experts say slow down, don’t do anything rash and remember long-term retirement goals.
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- Don’t make rash decisions with 401(k) retirement plans amid rocky markets, experts advise.
- Keep investing in 401(k)s if you can as inflation keeps rising, they say.
- Even during turbulent financial times, investors need to take advantage of 401(k match, experts say.
That’s the advice from several financial experts across the country who said that investors shouldn’t do anything rash with their 401(k) retirement accounts amid a turbulent 2022 stock market.
That turbulence was evident this week. The markets rebounded Friday after going into another tailspin the day before. That’s when a historic plunge in the stock price of Facebook’s parent company helped yank other tech stocks lower after the social media giant reported its streak of user growth had come to an end.
Behind that drama are bigger worries, including expectations that the Federal Reserve will raise short-term rates next month, and that any increase would mark an abrupt turnaround from much of the last two years when ultra-low rates helped prices surge for everything from stocks to cryptocurrencies. That’s why Wall Street has been shaky over the last month.
On Friday, though, that volatility ended on a positive note for 401(k) accounts. The S&P 500 index, a broad measure of stocks used as a benchmark for many mutual funds, closed up 0.5% while the tech-focused Nasdaq climbed 1.6%. The blue-chip Dow was little changed.
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With fewer private companies offering pensions, retirement 401(k) plans have become popular with Americans who want more than a Social Security payment to help in their golden years.
The booming markets last year created a record number of 401(k) millionaires, with at least 365,000 Americans having a balance of $1 million or more during the first quarter of 2021, according to CNBC.
As of Sept. 30, 2021, about 600,000 plans existed for around 60 million active participants, according to the Investment Company Institute, an association of regulated funds, including mutual and exchange-traded funds.
So, what should you do with that nest egg during these turbulent financial times?
USA TODAY reached out to Emily Irwin, senior director of advice at Wells Fargo Wealth & Investment Management; Geoffrey Smith, a clinical associate professor who specializes in finance at Arizona State University; Gerri Walsh, president of FINRA Investor Education Foundation; and Neal Van Zutphen, a partner and senior planner at Intrinsic Wealth Counsel Inc.
Here are excerpts of what they told USA TODAY about 401(k) retirement plans and the jittery markets (not all questions were answered by each expert).
What should investors do now?
Irwin: It’s a great time for investors to do a pulse check with their financial advisers…Make sure they continue to pay themselves first with retirement funding but feel comfortable with the market volatility…Stay the course when everything tends to be chaos around you.
Smith: It’s really hard to predict the stock market…I’d sit tight…But if you need money in the short run, you shouldn’t invest in the stock market.
Walsh: Take stock of where you are and focus on the long-term plan. When there are changes in the market or interest rate changes or inflation, that can cause people to make snap decisions.
Zutphen: Do not try to time the market. Be diversified between U.S. and non-U.S. companies. If you are not maxing out your elective deferrals and can afford to do so save and invest as much as you can. Your future self will thank you for doing so.
Advice for younger, older investors?
Irwin: Those in their 20s and 30s have such a long time to save and they need to consistently contribute and take advantage of any employer contributions or matches. Compounding is key and one of the beauties for those in their 20s and 30s.
Smith: In your 20s and 30s, the big advantage you have is time…Time adds a lot of compounding.
Walsh: The most important thing to help save is to automate the process. Many employers will auto-enroll employees…Think of your contribution level in terms of your family’s financial reality…Those in their 50s and 60s can take advantage of catch-up contributions, especially if they are not where they want to be in retirement savings.
Zutphen: Those in their forties, fifties and sixties need to understand their long-term capital needs…They may need to adjust their investment allocations. However, if they can afford to max out their pre-tax savings, they should continue to do so.
Time to increase contributions?
Irwin: Saving for retirement is absolutely critical…Investors have the opportunity to fund their 401(k) accounts with pre-tax dollars.
Smith: It’s hard to do market timing, just keep a steady level of investment.
Walsh: Do not live paycheck to paycheck because you have overcontributed on your 401(k). It really depends on your financial circumstances. It’s always a good idea to invest more in long-term savings, but you need to think about your current financial circumstances and what are your immediate expenses?
Zutphen: Funding your pre-tax retirement savings is a form of dollar cost averaging. If you can afford to increase your savings, do so. Stocks have historically been a good hedge against inflation over the long run.
What about that employer match?
Irwin: Think of an employer match as part of your total compensation. I think most of us would not give a paycheck back that you are entitled to and investors should look at their 401(k) the same way.
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Influence of midterm elections?
Smith: One thing about market volatility, is it comes in clusters. Very common in volatility to have a high period followed by a low period followed by a high period. It’s based on news and uncertainty. If people are afraid of changes or uncertainty on business policies and tax policies, that could be a result of midterm changes and that will affect market values.
Zutphen: The markets will always have volatility. Be certain to have your emergency funds so you can sleep well at night…Remain calm, continue to stick to your long-term investment plans and over time investors tend to do well.
Contributing: Associated Press