You are probably going to need to recession-proof your 401k.

As we move through the later part of the economic cycle, with many people anticipating a recession soon, we can expect stock markets to be more volatile. Outlined below is an approach to managing your 401k that has proved successful in previous volatile periods. By following these suggestions, you can effectively recession-proof your 401k account.

Recession-Proof Strategy #1: Don’t stop contributing

401k plan participants often say to me when stock markets are falling that it is a good time to stop making 401k contributions. Many wrongly think that rising markets are good to invest in but falling markets are not. They feel that if they invest in declining stock markets, they will only lose money.

The benefits of dollar-cost averaging become apparent when markets are falling as your contributions begin to buy more mutual fund shares at lower prices. Keep contributing at least the same amount, if not more, when markets are dropping. Remember, you should be attempting to buy low and sell high!

Recession-Proof Strategy #2: Resist the urge to sell

Many participants are pained to see the value of their 401k accounts melting away and feel the only way to stop the bleeding is to sell before they lose even more. Realizing losses this way is a major reason why most participants average less than half the returns of the funds they invest in.

You are a long-term investor in your 401k retirement plan until you get to within five years of your retirement. As a long-term investor, you should not be concerned with short-term market fluctuations. Don’t sell out of equities when markets fall. It is a bad investment strategy.

Recession-Proof Strategy #3: Never try to time the markets

Some investors feel they can sell out of stocks before the market falls and jump back in before it rises again. Many studies have shown that this activity, called market timing, doesn’t work.

Market timers have to be lucky enough to sell close to a market top and also fortunate enough to pick the right time to buy back into stocks near a market bottom. Very few investors are able to time both correctly.

Stay the course. Volatile times when the market is fluctuating wildly are not times to make major changes to your investment allocations.

Recession-Proof Strategy #4: Remain diversified

If you have a diversified account balance, you will experience fewer losses compared with market averages. If the Dow Jones Industrial Average is down 5%, a well-diversified 401k account may lose only half of that.

Volatile times are not good occasions to concentrate a lot of assets in a few investments. Remain or become properly diversified based on your age and ability to bear risk.

Recession-Proof Strategy #5: Don’t look at your account balance

Our instinct is to run and look at our 401k account balance when we hear the market has plunged. We want to reassure ourselves that we still have something left.

Large down days in the market are the worst times to review your account balance. Who of us wouldn’t be upset by seeing that we had lost 20% or more of our retirement savings in one day?

If you know you will be upset by a drop in value of your 401k account, refrain from looking at it on days when the markets nose-dive. Do just the opposite — look at your balance only on large up days.

Recession-Proof Strategy #6: Stick with your plan

Fast-moving markets, either rising or falling, are not times to make major changes to saving and investment plans. Emotions tend to color perceptions to a high degree during these times, leading to bad decision-making.

Get used to reviewing your investment strategy and making any changes to your allocations once a year. A good time to do this is after the end of the year, when you are working on your taxes.

Recession-Proof Strategy #7: Get help if you need it

Before you make any major adjustments to your saving and investment strategy, reach out and talk with an advisor. Nearly all 401k plan participants have access to a financial advisor through their plan. For most, this conversation is free of charge.

If you are scared, confused, angry or just aren’t share what to do, talk to your advisor. A 10-minute conversation can help you feel better about what is happening in the markets and how you should react.

Never make a major adjustment to your allocation strategy during down markets without consulting an advisor first.

Recession-Proof Strategy #8: Don’t panic — volatile markets do not last forever

Although it may seem as if a period of market declines or volatility will never end, it will likely be over sooner than most think. Riding out the storm is usually the best bet.

Hang in there and be sure to talk with an advisor before making any changes.


About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC (LRPC) is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to employer retirement plan sponsors. The firm specializes in Socially Responsible Investment (SRI) strategies for retirement plans and is a pioneer in the field. LRPC currently has contracts in place to provide consulting services on nearly a half billion dollars in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or or visit the firm’s website at Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

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, a 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.