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In 2022 and heading in to 2023 , your 401k could be taking a big hit.
If you want to avoid this, here’s how to prepare for a potential stock market crash.
What’s Causing My 401k to Go Down?
If you’re noticing that your 401k has been heading south in 2022 and 2023, it’s most likely due to the volatility in the stock market. The tech sector, in particular, has taken a big hit over the past year, so it could be a good time to talk to your financial advisor to see what you can do to offset loses in your retirement portfolio.
Here are some options to consider if you want to ease the pain in your 401k…
Consider Precious Metals
Historically, precious metals have provided a great hedge against inflation as well as recessionary environments. Now could be a great time to start hedging your bets by adding some amount of gold and/or silver to your retirement portfolio. Depending on your age, there is an option of rolling over 401k funds into a precious metals IRA, allowing you to purchase physical gold and silver.
Working with a trusted gold IRA company is a good place to start if you’re interested in learning more about the process – we recommend Augusta Precious Metals to help guide you through the rollover process. You get the full details by getting the free gold and silver investing kit below:
Target-date funds are popular among many 401(k) plan participants. These funds provide a diversified portfolio that’s designed to grow with you. These funds automatically rebalance themselves to minimize risk.
The most popular target-date funds have an expense ratio of less than 1%. These funds also have low sales commissions. If you’re thinking of switching your retirement funds to a target-date fund, make sure you understand what you’re getting into.
One of the downsides of using target-date funds is that they’re difficult to trade. As you approach retirement, you might find that it makes more sense to invest in individual ETFs. There’s more flexibility with these.
You don’t want to invest more than 50% of your assets in a single fund. That can mess up your overall allocation. Instead, a good financial advisor will help you design a plan that takes your individual risk tolerance into account.
If you’re concerned about fees, you may want to consider using a low-fee individual ETF. You may even be able to find a target-date fund that’s a better fit for you.
Some financial advisors say there’s nothing wrong with using target-date funds. They’re a great option for people who are new to investing. If you’re already invested, however, you should take some time to review your investment mix.
When choosing a target-date fund, you’ll need to make sure the glide path is aligned with your personal strategy. This can be an especially important issue if you’re in the middle of your career. If you don’t pay attention to the glide path, you could end up in a situation where you need to sell your investments during a down market. This can ruin the value of your nest egg in the long run.
Whether you’re just starting out or are looking for a new investment strategy, dollar-cost averaging (DCA) may be a good choice. The technique can help you build a consistent investing habit while taking the guesswork out of making market timing decisions. However, it also comes with its own set of risks.
The best way to use dollar-cost averaging is to stick to a consistent investment plan. This will help you put money to work as soon as possible and minimize the amount of cash sitting in your savings account.
The other way to do this is to invest at regular intervals. This is a more conservative approach, but it could mean missing out on larger returns. For instance, an investor who uses an automatic investment tool might invest $300 once a month. This allows him to buy more shares when prices are high and less when they’re low.
RELATED READING: Why is My IRA Losing Money?
If you’re unsure about using an automated program, you can make monthly or bi-weekly investments. But it will take more time upfront to set up and you may have to cut back on contributions during times of volatility.
For instance, you might not have enough money to invest $1,000 in October 2020, but if you used a manual strategy, you could invest $500 a month in the following five months. This is a lot better than simply buying in bulk when prices go up and not selling when they drop.
Having a set schedule for when to purchase securities can also help you avoid the psychological bias that can come from being on autopilot. For example, you might not be tempted to increase your contributions when you receive a raise, but you might be a bit more hesitant to cut them if they start to drop.
Stock Market Volatility
If you’re looking to start or continue your retirement plan, you should consider diversifying your portfolio. A mix of stocks, bonds, and real estate can help you avoid market downturns and volatility.
Stocks have been extremely volatile in the past year. The S&P 500 index has been in bear market territory multiple times, and the NASDAQ composite index was down more than 13%. It appears the markets are at a critical juncture.
While it’s important to stay invested, it’s also crucial to take the time to assess your risk tolerance. Understanding volatility can help you develop a stock portfolio that fits your risk tolerance.
The recent market volatility has affected 401k balances. The average IRA balance was $101,900 in the third quarter, while the average 403(b) account balance was $87,400.
As the Fed continues to tighten monetary policy, it is likely that short-term rates will continue to rise. This may make future stock market cash flows less attractive.
If you are worried about your 401k going down in 2022, you might want to reconsider your current investment strategy. As a rule, long-term investors don’t care much about day-to-day movements in the market. Instead, they invest to compound, allowing their investments to grow over the long term.
When the S&P 500 was in bear market territory in June, the Dow Jones Industrial Average closed just below its 200-week simple moving average. It recouped a bit in August, but it has retreated again since. In fact, the S&P 500 has been in bear market territory for the last nine quarters.
During this uncertain economic environment, the Fed has stepped in to try and fight inflation. The high level of inflation has forced stocks to move together with bonds. This has made it difficult to diversify.
Avoiding growth-oriented tech stocks
If you’re a growth stock lover, you may have noticed that many of your favorite funds are down more than 10% this year. While this is not unprecedented, it is a bit disappointing.
The ol’ growth stock can be a tad expensive, based on its valuation metrics. As a result, predicting its success is a risky proposition.
The best growth tech stocks tend to have the following characteristics: rapid growth, low volatility, and the ability to scale. In order to succeed, a company must be able to consistently expand its revenues at double digit rates. While this is not necessarily an indicator of profitability, it is a good indication that the company can sustain its growth.
The ol’ growth stock is the most popular and coveted investment in the 401k. But it is not the only way to make a killing. You could also consider investing in value-oriented companies. Some value-oriented names include Microsoft, Apple, and Netflix. These names can offer investors a life-changing return on investment. But, they can also be a bit more volatile than their less sophisticated counterparts.
A great financial advisor will be able to help you navigate the murky waters of market turbulence. For example, it’s a good idea to consolidate your holdings to reduce your risk. When it comes to value-oriented tech stocks, however, the path to a profit isn’t always clear. If you want to keep your money chugging along, you’ll need to decide whether you should pursue consolidation or invest in a more traditional asset mix.
If you’re looking to start a new investment fund, you’ll need to figure out which companies are likely to perform well in the long run. Often, it’s better to look for companies that are already established and have a track record of success.
Preparing for a Stock Market Crash
Many investors have been worried about a stock market crash in 2022. In fact, a few years back, the markets experienced extreme volatility. This was due to fears over rising inflation and interest rates.
While it is true that you can’t avoid stock market volatility, there are some things you can do to protect your 401k from a crash. One of the best ways to do this is by diversifying your portfolio. This means spreading your risk across a variety of investments, including stocks. This will also help dampen the effects of a poor asset performance.
You should also make sure to have a good emergency fund, especially if you plan on taking early withdrawals from your 401k. This should provide you with a six-month cushion. It should be enough to cover expenses like medical procedures, car repairs, and student loans.
Having an emergency fund is the best way to prevent dipping into your investments. This is especially important if you are a first-time investor. You may not know exactly how to invest, and this can lead to big losses.
Another great place to put money is in a money market account. You can buy and sell stocks from your money market account, and you can even use this to take advantage of a stock market crash. This is a great option for IRAs and 401ks, because it allows you to manage your investments yourself.
If you don’t have an emergency fund, you might want to consider investing in short-term bonds. These won’t give you as much return as your savings account, but they will be more stable.
You should also make sure that you are prepared to buy when stocks drop. This can be a great opportunity to pick up great companies at great prices.