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My 401k caught the Coronavirus

My 401k caught the Coronavirus

March 24, 2020

It appears my 401k plan has caught the Coronavirus.  What am I supposed to do? Nobody has asked me this exact question, but I have had variations of it posed over the past two weeks.  Here are a couple of ideas that might be helpful.

I always ask people in my 401k participant meetings, what is a 401k plan for?  They look at me like I'm stupid, but eventually we figure out that a 401k retirement plan is for retirement.  If you're not retiring soon, this drop in the market is actually good.  I know it sucks to look at your statement and see that the value is lower than before, but one number in your statement is always going up.  That is, the number of shares of the mutual fund or ETF that you own.  When you are contributing each pay period to your plan, you are buying shares of a mutual fund, for instance.  If the price of that fund has gone down by say 20%, then you are buying 20% more shares of the fund than you were before.  This is good.  People like buying things that are on sale.

The other thing people think they can do is time the market.  It sounds pretty easy.  When your account starts to go down, just move out of the market and park the portfolio in cash, then when the market starts to go back up, you move back in.  Voila!  Easy Cheesy!  Luckily in some ways, we can run hypothetical examples of what happened in 2008 and 2009.  The Financial Crisis had a drop in the stock market that was around the 50% range.  I have been working on various scenarios that illustrate staying with your original asset allocation and continuing to make contributions to your 401k versus waiting on the sidelines then getting back into the market after the market started to rise.  With the benefit of hindsight I assumed my hypothetical person moved out of the market after their account had gone down 20% sometime in 2008.  They moved to cash, continued contributing to their 401k then moved back to their original allocation in September of 2009.  Remember, the S&P 500 hit its low on 3/9/2009.  Nobody knew that day was the low, so I gave my example a little bit of time to see that the market was indeed going up.

The thing I noticed from these hypothetical examples was, the person who moved out and moved back in had a higher value in their portfolio than the person who maintained their original asset allocation and continued to invest.  BUT... the differences weren't that big.  PLUS... I was looking back in history and cherry picking the time to get out as well as the time to get back in.  In reality, I have found it much easier to get out than to pick the time to get back in.  It's really hard to pull the trigger and get back in at the right time.  The TV is screaming at you.  Social media is blowing up with conspiracy theories and every story says, this time is different!

Nobody knows what's going to happen with this virus and its affect on our world.  The word unprecedented is overused in my opinion, but the only thing that is close to what's happening now is the 1918 flu pandemic.  I have been listening to various money managers and economists and they all think this is going to be hard and affect the economy in a big way.  However, they also think we will get past this and things will eventually get back to normal.  

If you have questions or just want to talk, feel free to reach out to me.  I'll do my best to help you.  My email is  My office phone is 505 369-1224.  Stay healthy.  Bend the curve.  This too shall pass.  KB