Days of record market losses could inspire 401 (k) investors to action.
But most experts warn against this.
The reason: the days when markets are falling they are usually closely monitored on days when the market is rising. If you sell and run for cover now, you may miss the positive side.
“The reward doesn’t come without risk,” said Sri Reddy, senior vice president of retirement income and decisions at Principal Financial Group.
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Once you’ve determined the level of volatility that suits you, experts usually say you should try to keep the course even during volatile market activity.
“It’s especially important not to panic,” said Rita Asaf, vice president of pension management at Fidelity Investments. “Stick to your long-term plan.”
If you are still tempted to act, you can take some steps that experts say will help you in the future.
It is important to have a healthy mix of stocks and bonds.
Ideally, your diversified investment strategy will open you up to different areas of the market to help manage overall portfolio risk, Asaf said. This includes small capital, large capitalization and international equities, as well as investment-grade bonds.
Because stocks tend to rise over a long period of time, it’s also important to make sure your portfolio doesn’t move to a higher distribution of capital than you originally thought, Asaf said.
“You want to make sure your portfolio is balanced and that the distribution of equity is in line with your goals,” Asaf said.
Having enough money for your needs soon will make you better prepared to withstand market shocks.
If you’re retired or already retired, make sure you have enough liquidity to meet your spending needs for one to two years, Reddy advised.
“What you don’t want to do is adjust the market and then start withdrawing money from the market,” he said.
Investors of all ages should have three to six months of cash to cover basic expenses deferred to the emergency fund, Assaf said.
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Amid dramatic market headlines, some investors enter their accounts two to three times a day to test their money, Reddy said.
But keep in mind that the balances you see probably haven’t been updated to reflect real-time activity. Because plans 401 (k) consist of mutual funds, the last balance is usually not available until the end of the business day.
Most people tend not to work in wider markets because their time is always out of place, Reddy said.
“You can never predict a big upward movement, a big downward movement or intraday volatility,” he said.
Having a long-term plan tailored to your needs and goals makes it easier to follow the course.
To make sure you’re on the right track, it’s best to consult with a professional financial advisor who can help you prepare for all scenarios, Assaf said.