What to do with your IRA or 401(k) when the stock market gets bumpy


Within just the past month, the stock market has reached record highs, followed by record drops, and then more gains,  fueled by news events including the international spread of the coronavirus, the Democratic primary, and emergency interest rate cuts from the Fed, including the most recent cut to zero.

When it comes to your retirement nest egg in a 401(k) or IRA, those market swings can be hard to stomach, let alone plan a cogent financial strategy around. Fortunately, for most investors with a retirement account, the smart moves are likely more straightforward than you'd think.

Smart money moves to make when the market gets bumpy

Market bumps don't necessarily mean that you need to drop everything and tinker with your 401(k) holdings. In fact, volatility is pretty normal. Daily swings in excess of 1% occur with regularity for the U.S. stock market: They happened on about 27% of trading days in the past 20 years, according to FactSet data analyzed by Grow.

If you're in your 20s, 30s, or 40s, you likely still have decades to go before you retire. And making some smart moves now, along with creating a plan for when the market gets bumpy, can help calm your nerves and set you up for retirement.

How 'stillness' can bring financial success

Video by Jason Armesto

As Josh Brown, CEO of investment advisory firm Ritholtz Wealth Management, put it on Twitter recently: "If you're under 60, the universe just gave you a gift this week. Use it." 

Here are three moves that experts recommend you make:

  • Keep up with investment contributions. Making regular contributions to your 401(k) or IRA allows you to take advantage of dollar-cost averaging, smoothing out your costs in the long run. Plus, when the markets drop, it effectively means that securities are cheaper than they were before. Your contribution goes further, letting you buy more shares for your money. "Any time the market is down, it can be a great opportunity to buy some stock on sale," says Tess Zigo, a financial advisor at Waddell & Reed, a financial firm in Chicago.
Any time the market is down, it can be a great opportunity to buy some stock on sale.
Tess Zigo
Financial advisor, Waddell & Reed
  • Rebalance your portfolio. Having the right mix of investments is key to reaching your financial goals. And how your portfolio is divided among stocks, bonds, and other assets should depend on two key factors: your age and your risk tolerance. Experts say you should periodically check your allocations and make any tweaks to ensure you're in line with guidelines for your age group.
  • Do nothing. For many investors, the smartest money move of all might be to do nothing. Making rash moves fueled by fear today won't help you get ahead and could mean you end up pulling money prematurely and missing out on years of growth. That's why experts recommend not checking your account more than once a quarter, so you're not tempted to make emotional decisions you may later regret. 

"People should recognize that the stock market is a roller coaster in the short term — there's usually something" that's going to cause turbulence, Zigo says. So for most investors, it's probably best to ignore the news during a downturn, or look at it as a green light to keep investing, especially if you're on the younger side with a long way to go before retirement.

"For young people with a long time horizon, it could be a great opportunity to just keep buying," Zigo says.

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