Worried About Your 401K? Here's a Chance to Reassess

A stock market slump sent 401K’s tanking in the first half of the year. And with stocks falling steeply again in recent days, you may want to analyze your risk assessment.

Have you looked at your 401k recently? It’s been hard to stomach.

“To be honest, I’ve been sort of in denial about looking at it,” one passerby in Newton told us recently.

“I looked a couple of months ago when it was down easily 20%,” said another woman.  “I know it’s going to impact when and if I can retire, but I won’t be looking again.”

“It’s not the worst we’ve seen, but it was ugly. The S&P 500 down 18%. Really, really ugly,” said financial adviser Nora Yousif, senior vice president at the Empower Wealth Group at RBC Wealth Management.  

“If you were having heart palpitations and your blood pressure was going up, that means you are probably overexposed. Too risky for your own good.”

Now is the time to reassess your investments. So go ahead and log into your retirement account online. 

First and foremost, make sure you are properly diversified.

“I know people understand they get the basic premise of diversifying,  not too many eggs in one basket, but so few people actually invest and diversify properly,” said Yousif.

“You really want to make sure you’re invested in large-size companies, mid-size, small and international. And so that way when you have a good mix of the different cross-sections of the market, you get better, predictable, consistent returns over time.  And you actually stand in a better position to recoup losses out of a bear market than if you weren’t diversified.”

She also recommends taking a look at your risk and making sure it’s appropriate for your age and stage in life.     Even if your money is invested in a target date fund that you set up years ago.

“Those are great starter funds. They get more conservative as you get older,” she said.  “But a word of caution, there are two things.  One is as one ages, they tend to be, I’ve noticed, much more aggressive than they really ought to be.  As you get into your fifties and sixties, you may be overexposed and not realize it. And secondly, they’re not as diversified as people realize. They’re really made up of typically four categories fixed income, S&P 500, growth and value and international.  No mid-size, no small size companies represented.”

Some more advice?

“With rising interest rates right now, focus in on your bonds, on your fixed income, and make sure they are short-term,” said Yousif.  

Find it all confusing? You may want to contact a financial planner, but continue with your retirement contributions and stay the course.

“Bottom line, you have to stay cool, calm and collected when investing and do not let your emotions get the best of you,” said Yousif.  “The key to being a good investor is being a contrarian and doing the opposite of what your emotions are telling you. So if you’re knee-jerk reaction is to panic. You really need to calm down, and if anything, invest more while the market is down.”

And if you changed jobs during the great resignation, make sure you consolidate your old employer’s plan with your new one, or roll it over into your personal individual retirement account.