401k and COVID-19: Dos and Don’ts

Like many of you, I checked my phone this morning only to find out more bad news: the spread of the coronavirus seems to be worsening. More than 83,000 people have been infected in at least 53 countries, and more than 2,800 have died. Our thoughts are with those affected, and we pray for a speedy treatment and cure.

Due largely to the panic over this virus, stock markets around the world have seen significant declines. Your 401k balance has likely been affected; my account is down over 10% since Monday, February 21. Today is not starting off any better, and more declines may be ahead. Many 401k participants are getting nervous and beginning to question their investment choices. Some may be wondering if they should participate at all.

While it is easy to understand why some may be questioning their retirement plan choices, reactionary decisions to short term market conditions can lead to severe consequences down the road. As former Fidelity Magellan manager and investment guru Peter Lynch once said:

I mean the stomach is the key organ here. It’s not the brain. Do you have the stomach for these kinds of declines? And what’s your timing like? Is your horizon one year? Is your horizon ten years or 20 years? What the market’s going to do in one or two years, you don’t know. Time is on your side in the stock market.

Here are a few things I’ll be doing (or not doing) with my own account during down markets. I’d encourage you to do the same.

  1. Avoid Emotional Decisions – You want to buy low and sell high, not the opposite…and yet most people buy high and sell low. Why? Emotional decisions. Too many of us check our phones or watch TV or log on the internet, hear the gloom and doom, and decide, “I want out.” If you get out at the bottom, you’ll likely miss the ride back to the top.
  2. Don’t Watch TV. – See #1.
  3. Think Long Term – These are retirement funds, not meant to be accessed for a long time. The market is going to go up and down… history tells us so. Recently (December 2018), the S&P 500 dropped almost 11% in one month. History also tells us that down markets will come back, and long term discipline will be rewarded. Remember: the amount of money in your account is only important on the day you want to spend it.
  4. Consider Increasing Your Deferral Percentage – Remember “buy low” from #1? This is exactly what you are doing in a down market, and you’ll likely be rewarded over the long term. Down markets are actually very nice opportunities for long term investors…and increasing your deferrals during these times is the opposite of an emotional decision (again, see #1). In the words of Warren Buffet, “When it’s raining gold, reach for a bucket, not a thimble.”

We have faced rocky markets before (and will again), but discipline and sound strategy will be rewarded in the end. If you have any questions or concerns about your account, or if I can help in any way, please do not hesitate to contact me at jkenerly@plybon.com or 336.292.9050