Dramatic stock market declines recently shook up long-term investors. For baby boomers who have faithfully contributed to a 401(k) or other retirement account, the fact that retirement has arrived or is close at hand makes it more perplexing. According to an article by cnn.com, it’s important to put major stock market corrections and crashes into perspective. Experts say the stock market pull back comes after a 6-year bull market with a lot of gains. For investors, the recent 1,000 point drop in the DOW was the worst pullback since October 2008. However, compared to the “Black Monday” of 1987, the recent decline was not as dramatic. The market was down more than 22 percent in 1987 compared to about 6 percent with the recent correction. Still, to protect your 401(k) for retirement, there are some smart money moves you can make.
Re-balance your portfolio
A recent piece by investopedia.com, many baby boomers have too much money allocated for stocks. Experts say many boomers in their 50s and 60s got caught up in the stock market’s rise, and neglected proper asset allocation. Although financial experts don’t share the same opinion about what percentage of stocks and what percentage of bonds or other funds you should hold in a retirement portfolio, the idea is to become more conservative as you grow older. To make it simple, life-cycle or target-date funds maintain the proper asset allocation based on a target retirement date.
Contribute more money
After a stock market correction, you will likely buy shares of stocks at a discount. Now is the time to level up in terms of contribution rates. According to the investopedia.com article, research shows total contribution levels to 4011(k) plans made by employees and employers reached record levels. A shake-up in the stock market doesn’t signal a time to stop buying any stocks. Rather, it’s a great time to purchase shares in exchange-traded funds and mutual funds.
Even after a market plunge, it is important for baby boomers to make contributions to a 401(k) unless they are no longer eligible to contribute. If you continue to work for a company with an employer-sponsored retirement account, put money aside for as long gas possible. Resist the urge to stop contributing after a market crash, but focus on a wide range of investments. For more information about surviving a stock market correction, please contact us.