Based on Vanguard’s 2024 analysis, the average 401(k) balance for Vanguard participants in 2023 was $134,128, an increase of 19% from 2022. It’s worth pointing out that this is just an average figure, since the amount you have will depend on your age, when you started investing and how you’re investing.
The good news is that a retirement savings account can help you cover expenses in your golden years when you eventually leave your job. However, to retire comfortably one day, you’ll have to be disciplined with your 401(k) and how you balance your portfolio in the face of economic hardships during your career. You could hurt your future finances if you tweak your portfolio too often.
Be Aware: Avoid This Retirement Savings Mistake That’s Costing Americans Up To $300K
Find Out: 4 Subtly Genius Moves All Wealthy People Make With Their Money
Here are five reasons you shouldn’t make changes to your 401(k) when the stock market drops.
Also see how long it takes to become a millionaire through your 401(k).
Trending Now: Suze Orman’s Secret to a Wealthy Retirement–Have You Made This Money Move?
Your 401(k) Is a Long-Term Investment Vehicle
The most important takeaway from the retirement experts is that you have to remind yourself that your retirement account is a long-term investment vehicle for your savings, especially if you’re early into your career. For example, if you’re only in your 30s, you still have at least another 30 years or so to grow your funds to have enough money to cover your expenses in your golden years.
As such, it’s important to not make hasty decisions with your 401(k) when the stock market drops.
“Your 401(k) is designed to be a long-term investment vehicle for retirement,” said Jay Zigmont, Ph.D., CFP, founder of Childfree Wealth. “Contributing each paycheck to your 401(k) is a form of dollar-cost averaging.”
The standard investing advice is that consistently selling high and buying low is nearly impossible, and even the best investors out there aren’t able to time the market. You want to instead focus on making consistent contributions to your retirement fund.
“Time is your best friend here, the longer you’re contributing to it, the more you’ll be rewarded down the road,” said Adam Puff, a financial advisor and founder of Haddonfield Financial Planning. “Aside from that, even the very best investors can’t time the stock market.”
Read Next: Suze Orman: 3 Biggest Mistakes You Can Make as an Investor
You Don’t Want To Mishandle Your Retirement Savings
“Unless you have copious amounts of time to research and constantly track the market, you don’t want to mishandle your 401(k),” Puff said. “What’s important is to continue putting money into it.”
When you panic-sell your stocks and holdings, you could make poor decisions that cost you money. If you get into the habit of selling every time the market drops, you could easily mishandle your retirement savings, making it difficult to retire in the future.
You Don’t Want To Rebalance Your Portfolio for No Reason
“Changing your investments in your 401(k) will cause your account to rebalance into new funds, selling at the lower price,” Zigmont said. “You should rebalance when your financial plans change, or your investment options change, not based on what the market is doing.”
If you rebalance your portfolio simply because of a stock market drop, then you could hurt your long-term goals for no real reason. Even though it may sting to see your portfolio drop, sometimes the best course of action is to step away and wait until the economy improves instead of selling assets off.
A Down Market Means You Get a Better Price
Puff recommended that you try to change your mindset around the stock market and your retirement savings. “If the stock market drops, think of it as a sale. The same investment you bought last month is 10% off this month,” he said. When the sale is finally over, and your investments go up, you’ll be glad you didn’t readjust your portfolio.
While seeing your portfolio drop can be a nerve-wracking experience, the upside is that if you’re confident in your investment and your allocations, you’ll be able to invest in some quality assets at a discounted price. When the entire stock market drops, this means that individual stocks can go down in price due to overall market sentiment. The good news is that these companies will likely bounce back in the long run.
“If you’re currently contributing, then a down market is great for you, as you can buy at a lower price,” Zigmont said.
The Stock Market Will Always Fluctuate
“To win in the long haul, don’t treat your 401(k) account like a game,” Puff said. “Just set it and forget it.” The most crucial point is to remember that the stock market will always have swings as external factors impact overall investor sentiment, and the economy goes through cycles. You’ll experience many recessions before retirement if you’re still early in your career.
The experts agreed that your best option for retirement planning is to set it and forget it since you can’t control how the stock market will react to overall economic news. Various external factors, from geopolitical issues to challenges with natural resources, are out of our control.
“Focus on buying the entire stock market at the lowest fees possible, and you can ride the ups and downs as your 401(k) grows with the market,” Zigmont said.
More From GOBankingRates
-
I’m a Financial Advisor: My Wealthiest Clients All Do These 3 Things
-
3 Things You Must Do When Your Savings Reach $50,000
-
9 Things You Must Do To Grow Your Wealth in 2025
This article originally appeared on GOBankingRates.com: 5 Reasons To Leave Your 401(k) Alone When the Stock Market Drops