In the wake of Monday’s stock market selloff—which saw all three major indexes fall more than 2.5%—retirement plan advisors are once again being charged with guiding their clients through turbulent times.
“First know this: you haven’t lost any money even though your 401(k) value has dropped. You only recognize a gain or loss when you take a distribution.”
Sharebuilder 401k’s Stuart Robertson
Monday’s turbulence started in Japan, where the Nikkei 225 fell more than 12% (but notably bounced back Tuesday with a 10.23% gain), its worst one-day drop since the crash after Black Monday in 1987. Losses followed the sunrise across Europe Monday and eventually on to the U.S., with the Dow dropping 1,034 points, Nasdaq sliding 3.4% and the S&P 500 retreating 3% (its worst day since September 2022).
The sudden (and worldwide) downturn left many retirement investors feeling uncertain about their financial futures, particularly those approaching or already in retirement. As trusted advisors, it is crucial to provide reassurance, strategic advice, and actionable steps to help clients navigate this period of heightened volatility.
401(k) participants might have been tempted (or terrified) to check their retirement account balances Monday in the wake of the market downturn. It is important not to let momentary panic lead to bad decisions.
“First know this: you haven’t lost any money even though your 401(k) value has dropped. You only recognize a gain or loss when you take a distribution. Most folks won’t tap their 401(k) balances for 10, 20, 30 or even 40 years,” said Stuart Robertson, CEO of Sharebuilder 401k. “Second, since 1926, there have been 15 recessions and 15 market recoveries. And third, in every 20-year period researched back to 1926, the U.S. stock market has delivered positive returns.”
Robertson added that when you have 5, 10, 20+ years until you retire, you have a good amount of time to get through most if not all downturns. “Staying with your investing plan instead of making a knee jerk reaction can play to your advantage,” he said. “Remember the old adage: buy low, sell high.”
Advisors contacted by 401(k) Specialist Monday said retirement-focused clients more than five years away from retirement stressed that Monday’s volatility should be a non-issue. “Simply turn off the TV and go about your daily life,” said David Johnston, CFP, managing partner of Amwell Ridge Wealth Management in Flemington, N.J. “No one should let the media sensationalism get them riled up. We need to remember “1,000 point drop in DOW!!!” is only about 3%—normal stuff.”
Johnston also highlighted how market selloffs can create opportunity. “For younger folks, be happy when markets retreat,” Johnston said. “Your next automatic 401(k) contribution will be buying more shares!”
Those sentiments were echoed by Shawn Clark, co-founder and an investment advisor for Mosaic Financial Group in Tampa, Fla. “For investors, this means that stocks are on sale. The best time to buy is when things are on sale,” Clark told 401(k) Specialist.
“Now for those who are closer to retirement, it is wise to consider making some changes to your portfolio,” Clark added. “If you are invested the same way in your 60s that you were in your 30s, you are taking some chances. Monday’s correction is a great reminder that there are no sure things in the stock or bond market. It is wise to focus on hitting your retirement goals instead of chasing large returns when you are within 10 years of retirement.”
That’s a point Johnston backed up.
“For those within five years of retirement or already retired, you shouldn’t have had your allocation significantly overweighted towards equities—especially in the tech sector which has been on an incredible run,” Johnston said.
Nvidia shares fell more than 6% as the so-called “Magnificent Seven” stocks suffered a valuation wipeout of more than $650 billion during Monday’s market plunge. The seven—also including Google parent Alphabet, Meta Platforms, Tesla, Amazon, Apple and Microsoft—have lost roughly $1.3 trillion in market cap over the past three trading sessions.
“The timing of market pullbacks is much more dangerous for those age 60+. Important to remember that you often get burned when you play with fire. For this cohort, a more balanced approach is likely a more prudent course of action.”
Seeking stability in guaranteed income
Nate Towers, founder and director of retirement planning firm Five Pathways Financial, said that because Wall Street’s fear gauge has escalated to levels not seen since March 2020 during the COVID-19 pandemic, he’s noticed a significant increase in 401(k) participants wanting to do in-service rollovers of at least a portion of their assets.
“The primary reason is that they feel a lack of control over the options available within their plan, especially due to a lack of education on utilizing more conservative products like income annuities. In these chaotic times, the need for guaranteed income is at an all-time high as people seek stability they can count on,” Towers said.
“The only real panic people have with the market is the fear of losing time. This fear often manifests as selling off stocks and other assets, but it fundamentally concerns their retirement and the finite time they have to secure it. They want to create something they can control and rely on, like guaranteed income from an annuity, alongside a self-managed market strategy,” Towers added.
He’s been teaching his clients that guaranteed income provides them with a “permission slip” to be more flexible in managing their funds. “By securing a portion of their assets with guaranteed income products, they are not entirely dependent on the market for the income they need,” he said. “This allows them to be more aggressive or passive in their investments and the ability to reduce fees by self-managing, knowing that their essential income is secured elsewhere.”
SEE ALSO:
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- To Mitigate Market Volatility Concerns, Think Stable Value Funds
- Retirement Savings Trends on the Upswing: ICI
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
