Keep 401(k)s and IRAs Invested to Turn Market Volatility Into Long-Term Opportunity
Many retirement savers are increasingly anxious about their financial futures. In recent weeks, Google searches for “401(k)” have surged alongside related queries for “stock market crash” and “recession.” Markets have continued to teeter in bear market territory as investment giants JP Morgan and Goldman Sachs heightened concerns by significantly increasing their recession probability forecasts.
Yet history provides a helpful reminder in moments like these: even in the case of the most severe downturns, markets eventually recover. Retirement is a long-term game, and what you do - or don’t do today can significantly impact your retirement readiness when market growth resumes.
Market Reactions
According to Alight Solutions’ 401(k) Index, in the past two months, people have responded to increased volatility by moving vast sums of money from large US equity funds and target date funds to historically safer, fixed income instruments.
On April 7th, the same day that U.S. President Donald Trump announced an additional 50% tariff on Chinese imports and the Dow plunged 350 points, 401(k) trading volume reached “historic highs.” 401(k) trading activity that Monday was nearly 10 times an average day’s volume. Two days later, following news of a tariff pause, markets skyrocketed.
Watching 401(k) balances plummet during periods of market instability is unsettling. But retirement planning is a long-term game, measured in years and decades, not months or days.
Know The Difference Between What You Can and Can’t Control
Any time you put your money in the stock market or other investments, you'll always be subject to ups and downs. But market downturns do not last forever. Regardless of where you are in your retirement timeline, know that withdrawing your money during a downturn will lock in losses.
Your Investments Go Up and Down
Since 1945, the S&P 500 has delivered an average annual return of approximately 10%. Over that same period, US markets have experienced 13 recessions. The message is clear: those who pull out of the market during a downturn not only lock in their losses, but miss an opportunity for added returns when the market recovers.
For example, after the COVID-19 crisis of 2020, it took just under 5 months for markets to recover the worst of their losses. After the 2008 financial crisis, when the S&P 500 lost over 50% of its value, stocks fully recovered within 5 years and delivered one of the longest bull markets in history.
