If you’ve been watching the market lately, you may have noticed some turbulence. Changes in trade policies, inflation concerns, global events, and regulatory shifts can all contribute to short-term volatility. If you’re feeling uncertain about your 401(k), you’re not alone. However, it’s important to remember that market ups and downs are a normal part of long-term investing.
But here’s the good news: market fluctuations are normal. In fact, they’re an expected part of investing. While it might be tempting to make quick decisions based on short-term volatility, staying calm and focusing on the bigger picture is the best way to protect your long-term financial health.
Let’s break down what you need to know about market swings and how to navigate them with confidence.
Historically, the stock market has experienced periods of decline followed by recovery. Since 1980, market declines of 10% or more have occurred approximately every 1.2 to 1.5 years. While these dips can feel concerning, they have been a common occurrence over time.
Instead of focusing on short-term downturns, it may be helpful to take a long-term perspective. Financial markets have experienced periods of growth following past fluctuations, which is why long-term investing strategies often emphasize patience and consistency.
Your 401(k) isn’t a day-trading account—it’s a long-term tool to help you build wealth for retirement. Short-term market movements may cause concern, but they shouldn’t dictate major changes to your plan.
Think of it this way: Would you sell your house just because the real estate market dips for a few months? Probably not. The same logic applies to your retirement savings. Knee-jerk reactions to market swings can sometimes do more harm than good. Instead, consider whether your investment choices align with your long-term financial goals and risk tolerance.
It might seem like a smart idea to sell when the market drops and buy back in when things improve but research suggests that this strategy rarely works.
Some of the biggest market gains happen right after downturns, and missing just a few of these "best days" can significantly reduce long-term returns. For example, if you missed the 20 best trading days over the past 20 years, your returns would have been reduced by more than 70%.
Since no one can predict exactly when those big rebound days will happen, staying invested through the ups and the downs has historically been a sound strategy.
Ever heard the phrase, “Don’t put all your eggs in one basket”? That’s exactly what diversification helps with.
A well-balanced portfolio spreads investments across different asset classes (like stocks, bonds, and real estate) to help reduce the impact of any single downturn. While diversification doesn’t eliminate risk, it helps cushion the impact of market volatility and creates a more stable long-term investment approach.
If you haven’t reviewed your portfolio in a while, now might be a good time to check whether your investment mix aligns with your risk tolerance and long-term goals.
Market volatility can feel nerve-wracking, but it’s a normal part of investing. The key is to take a step back, focus on your long-term goals, and avoid making emotional decisions based on short-term market movements.
If you have questions about your 401(k) or investment strategy, consider talking to a financial professional who can help you review your options. By staying informed and sticking to a well-thought-out plan, you can weather market changes with confidence and stay on track toward your financial future.