In the last nine weeks, businesses have closed en masse throughout the country, and more than 38 million people have become unemployed. The American public is gearing itself up for another brutal recession. Many are afraid of what this could mean for their lives, both now and in the future. One of the most pressing matters is that of maintaining a 401K during this economic crisis, especially if you were one of those people laid off or furloughed by your employer. Here are a few pointers on how to save your 401K during this time.
Avoid Taking Out a Loan
You may be seeing all sorts of information being spread about how to manage your 401K during a recession, many of which emphasize close monitoring of the market. Years of observing market trends and the consequential economic patterns have shown us that the most reliable strategy for contributing to your 401K is long-term, regular contributions.
Unfortunately, many people are being advised that the current pandemic merits the decision to take out a 401K loan. This is not a wise thing to do and could present you with more consequences than benefits, truthfully. Even though legislation has recently increased the ease with which you can take out a loan from your 401K, this could have long-term consequences if you are unable to pay it back.
Make Only Slight Alterations to Meet Your Current Needs
Not everyone can afford to plan for the long-term; some may be quite close to retirement, even within a few years. If you are in such a situation, you may require finances within a shorter timeframe. One of the safest ways to go about this is by selling a handful of your investments. (If you have five or more years before retirement, it is best for you to wait on selling these investments. You are likely to see a 10% annual return when the markets begin an uptick once again.)
Before you do this, though, you’ll need to review the allocation of your assets. Make sure that you have a reasonable mixture of stocks and bonds, along with diverse mutual funds. As you review your portfolio and determine whether you need to adjust for a healthier balance. For example, you might consider adding some bonds if you happen to find that your stocks are in excess.
Keep an Eye Out for Investment Opportunities
Instead of shying away from the market, many investors are using this time to increase their 401K contributions. Keep in mind that, this year, 401K contribution limits have been increased to $19,500 (for individuals that are 50 years in age or older, an additional $6,500 has been added). For better returns in the future, take advantage of this by purchasing stocks at low prices.
To guide you through any necessary changes to your 401K during this time, contact a 401K plan provider. An expert can provide you with the financial advice you need to avoid making any costly mistakes that will stick with you even after the pandemic. To recession-proof your plan now and for years to come, get in contact with an excellent 401K plan provider today.