Updated Feb 18, 2018 @ 2:46 pm

Many of us contribute to a 401(k) and are relying on it to support us in retirement, but do you know what investments make up your 401(k)? Do you know if your plan is set up to withstand a market storm?

Market fluctuations are an expected piece of the economic cycle, but when it comes to your retirement, the timing of when the market drops can matter more than how much it drops.

Market volatility is an even bigger cause for concern when your retirement plan is sitting at multi-year highs. The S&P 500 has been seeing all-time highs, as seen below. This is great for the moment, but we know from history that markets will not stay at this point forever.

From StackExchange

In the last couple of decades, there have been several significant downturns that set many people back in their retirement plans. In fact, there have been sixteen down-bear markets in the last ninety years. Recession number seventeen will arrive eventually, but it is impossible to predict when. What are some steps you can take to prepare your 401(k) for a downturn?

Safeguard Your Investments

Do you want to live comfortably in retirement or just scrape by? Market volatility can determine what your lifestyle will be in retirement. Facing a decline the early years of retirement can be disastrous. Based on historical data, there is more than a 50% chance that you could experience a bear market in the first five years of your retirement. The following strategies won’t eliminate loss entirely, but they may provide a buffer against the natural ebbs and flows of the market.

Stay Calm

It’s easy to let your emotions take over when the market wreaks havoc on your finances. But if you stay true to your investment strategy and avoid making decisions when emotions are running high, you won’t face the risk of losing even more. As long as you have created a disciplined financial plan and are rebalancing your portfolio regularly, you are setting yourself up for success. Your number one priority is to protect your principal, so don’t gamble with your investments when the market is struggling.

Make It A Priority To Diversify And Rebalance

We’ve all heard about the importance of diversification when it comes to maximizing our investments. But as you get closer to retirement, it’s even more critical to make sure you are investing in the right types of holdings. This is the time to reduce your risk and ensure that you have the right asset allocation. In this way, you can minimize the impact that any one losing investment can have on your overall portfolio performance.

Rebalancing is also a key factor in keeping your portfolio safe. It’s not enough to create proper diversification and just walk away. You need to regularly analyze your 401(k) holdings to ensure that it lines up with your risk level and that you haven’t become too reliant on any one asset category.

Create An Emergency Fund

This strategy is all about being conservative. While cash investments may not provide a lot of growth, having a cash contingency fund with at least one year’s worth of living expenses will protect you against having to sell investments at low values to free up cash. Examine spending patterns and find ways to invest even more into cash or cash equivalents, such as short-term bonds, certificates of deposits, or Treasury bills.

Work With Your Advisor

Finally, and most importantly, work with your advisor to plan ahead for the next bear market. You don’t want to worry about running out of money in retirement, so let your advisor help you minimize your losses when the market drops. Your advisor can help you make rational decisions, no matter the state of the market, and guide you to stay true to your investment strategy.

Your 401(k) is a major part of your retirement plan. Many people simply contribute and hope for the best, but there are ways to ensure your 401(k) survives a market downturn.

Contact us to discuss the things you can do with your current retirement plan to increase profits and protect against loss, even when the market is struggling. To learn more, download our free checklist, 12 Steps to a Successful Retirement today. Call my office at 770.249.7424 or email me today at beau@richlifeadvisors.com.

About Beau Henderson

Beau Henderson is a financial advisor, author, coach, radio personality, and CEO of RichLife Advisors. He has helped over 3,000 clients to not just improve their relationship with money, but to live the life of their dreams.

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