Volatile markets have returned with a vengeance. The Dow Jones Industrial Average has fluctuated by a thousand or more points on recent trading days. During these times your 401k plan participants can become very nervous. Plan sponsors and their investment advisors should help participants remain calm during these volatile markets by sharing the following:
1. Don’t stop contributing
Participants often contact me during times when stock markets are falling so they can confirm that, “…now is a good time to stop making 401k contributions, right Bob?”. Many participants wrongly believe that rising markets are good to invest in but falling markets are not. This situation presents a wonderful opportunity to discuss the merits of dollar-cost averaging.
2. Resist the urge to sell
Many participants are pained to see the value of their accounts falling and feel the only way to stop the bleeding is to sell, before their investment falls even more. Realizing losses like this is a major reason why most participants average less than half of the return of the funds they are invested in. Reassure your participants that markets rise and fall and that they are long-term investors who should not be concerned about short-term market fluctuations.
3. Don’t look at your account balance
If you know you will be upset by the loss in value of your 401k account, refrain from viewing your account balance on days in which the markets suffer large losses.
4. Get help if you need it
This is a good time to share your investment advisor’s contact information with participants. Encourage participants who are thinking about making any sort of change to their accounts to contact their advisor first.
5. Stick with your plan
Fast-moving markets, either rising or falling, are not times during which major changes to saving and investment plans should be made. Emotions tend to color perceptions to a high degree during these times, leading to bad decision-making.
6. Volatile markets do not last forever
Nothing good or bad ever lasts forever. Although it may seem like this latest period of volatile markets will never end, it will likely be over sooner than most think. Riding out the storm is usually the best bet.
In short, participants should hang-on, hang in there and contact their advisor before making any changes.
Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or firstname.lastname@example.org.
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or email@example.com or visit the firm’s website at: https://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.