At the close of the market on 4/7, the S&P 500 was up 19% from its March 23, 2020, low, but it’s still more than 20% below its February high. Volatility has been the economic norm of COVID-19. That being said, what, if anything, should you do with your 401(k)? Here are some common questions with uncommon answers.

Should I stop contributing to my 401(k)?

If you feel your job is secure, don’t turn off contributions just because of market volatility. No one can predict the market; we still hold that if our clients are invested with a financial plan they feel is sound, they should stay that way. If your employer offers matching contribution, you should still contribute enough get the employer match. Also, it’s important to note that If your current investments are causing you to lose sleep at night – you should work collaboratively with a financial advisor to adjust your investment plan to put you back on track.

However, If you’re at a point where you  do not have emergency savings and you’re worried about being laid off from your current position, it might make sense, depending on your individual financial circumstances, to stop contributions to build up reserves.

My job is secure, but should I up my 401(k) contributions? 

Want to take advantage of the market dips? Some of our clients are ramping up their contributions. On average, contributions are spread out over the full tax year, funded with deductions made with each paycheck. You may want to change the percentage of your salary going in, and for individuals who raise their contribution percentage, they can max out earlier in the year. Check with your company’s HR to see that you won’t lose your employer match if you accelerate contributions; if your plan has a year-end true-up provision, you’re fine.

Ramping up contributions is only an appealing option if you know what options you have, and have a comprehensive understanding of why, what and where you’re exactly contributing towards. Seek a different perspective where it’s needed.

Do I need to reassess my 401(k) options?

An option for nervous investors: If you find that you have had a hard time weeding through the mix of funds in your 401(k) you may want to consider opting for one target date fund. A target date fund, is “a class of mutual funds that rebalances asset class weights over time so that it begins heavier to stocks when you are younger and heavier to bonds as you age.” The fund automatically rebalances the selection of stocks and bonds as you get closer to your set retirement date.  The set it and forget it nature of target-date funds can be a positive, or negative depending on your specific financial circumstances and goals. People change over time, and so do their needs and goals.

There is no one-size-fits all approach and you should work closely with a financial advisor who can work collaboratively with you to establish a plan best fit to your unique financial goals.

Nicholas E. Fischer

Financial Advisor


Direct: 585.340.2200