Has the bear market reduced the value of your 401k? If so, you’re not alone. Thanks to COVID-19, millions of investors and 401k participants have watched the value of their accounts decline. On March 11, the greatest bull market in the history of Wall Street officially ended. Stocks are currently in a bear market for the first time since March 9, 2009. Are you still invested in the stock market? If so, do you have a strategy in place to weather the storm? Let’s discuss your options.

Developing a proper 401k strategy depends on two main factors: your age and your current employment situation. According to data provided by the Social Security Administration, the average retirement age is 67. Based on a 2018 Gallup poll, the average American plans to retire at the age of 66. If you are currently employed but nearing the age of retirement (i.e. the mid-60s), the most important feature of your 401k strategy should involve reviewing the asset allocation inside your account. Over the long run, stocks have historically outperformed other asset classes. However, as we recently discovered with COVID-19, the stock market carries a great deal of risk. Please review the following table.

Source Yardeni Research

The table above includes the top ten worst bear markets of the past 100 years. The average duration of the ten worst bear markets was 467 days. The average loss was 48.1%. Will the COVID-19 bear market make its way on the list as one of the top ten bear markets of the past 100 years? It’s certainly possible. So far, the bear market has recorded a maximum loss of 35.4%, which occurred on March 23.

If you are nearing the age of retirement, you may want to consider reducing your exposure to the stock market. As the table clearly indicates, investing in the stock market can be extremely volatile and it could take a considerable amount of time to recover your losses. A licensed investment professional can help you determine the proper asset allocation based on your age and financial goals.
If you are more than ten years away from retirement, time is on your side. Based on historical results, you have time to recover your stock market losses. In fact, now could be a good time to actually increase your exposure to the stock market. Why? Because the stock market may be on “sale” following the COVID-19 decline. Nobody likes a bear market. However, if you are several years away from retirement, you may want to speak with a licensed investment professional about changing the allocation inside your 401k.

What if COVID-19 caused you to lose your job? What are your options in regard to your 401k? Actually, you have several choices. The first choice is to do nothing. The vast majority of 401k plans allow you to maintain the account with your former employer. If you are happy with the 401k plan portfolio, you may want to simply leave the account with the previous employer. When you find a new job, if the new employer offers a 401k participation, most plans will allow you to transfer the old 401k to your new employer. Your final option is to roll the 401k into an IRA. This might be your best option because it provides you with more investment choices. You are no longer restricted to the options made available by the old employer.

Prior to making a final decision concerning your 401k, you might want to consider the benefits of speaking with a licensed investment professional. The licensed professional can help you answer many questions. For example, if you decide to roll into an IRA, should you select a Roth IRA or Traditional IRA? What are the tax consequences? How much should you contribute to the IRA? What is the appropriate asset allocation? These are just a few questions that an investment professional can help you answer.

Angelica Roxas has been licensed as an investment professional for almost 20 years. She is a Financial Strategist and President of Strategic Asset Preservation, Inc. Angelica is an expert in helping investors develop a proactive retirement plan. Angelica’s clients were prepared for COVID-19 because they had a pre-planned exit strategy.

Are you prepared for the next crisis? If not, you may want to meet with Angelica. She can help you prepare a specific plan of action to cover any situation that may develop in your financial future. You may email us at info@strategicassetpreservation.com and sign up for our upcoming LIVE webinars on the “Top 10 IRA/401k/403b/TSP Mistakes to Avoid for a Healthy Retirement and request the free Ebook. Or go to www.strategicassetpreservation.com