Is your 401k positioned for a potential market downturn?

It was a record 2017 for financial markets, including the Dow topping 24,000 for the first time and the S&P 500 closing above 2,600, also a milestone.

And investors are enjoying the second longest bull market since 1929.

But, at 8 1/2 years, how much longer can the numbers climb before we enter a bear market?

It’s been less than a decade since the financial crisis, and the devastating losses are still fresh in many minds. It’s not surprising that many of us, particularly those nearing retirement, are worried about the impact a market downturn may have on their 401k.

A 401k is different from other accounts in a few ways. First, likely you receive your 401k from an employer who may match contributions.

Secondly, contributions are made on after-tax basis, and you can choose how and where your money is invested.

However, a 401k requires maintenance. If the markets crash, make sure your 401k investments are properly allocated.


One of the most important rules in investing is to refrain from emotional decisions. Multiple studies have analyzed how emotions affect investing results, especially when we chase above-average returns.

A 2015 study by Dalbar, a Boston research firm, revealed that investors’ decisions were the biggest reason for underperformance. Simply put, behavioral biases lead to poor investment decisions.

Women, though, tend to be strong in this area. In general, they tend to change their asset allocation 20 percent less and track their accounts 45 percent less than men.

They also are more likely to avoid timing the market, which protects them from risky behavior.


Also, don’t make major changes to your account in anticipation of a downturn.

Erring too much on the side of caution too many years ahead of retirement may prevent you from gaining the returns needed to retire on your terms.

For example, in a panic, investors may sell stocks and pursue safer investments such as annuities, bonds and cash.


To feel confident during market turmoil, be prepared and knowledgeable about how your 401k can handle volatility. Here are a few ways to accomplish it:

<Start with a firm foundation

Choosing the funds and amounts in your 401k can be confusing. Don’t pick them at random or settle on an investment out of confusion.

While you can readjust your allocation after-the-fact, it’s better to start off on the right foot.

When you set up your account, speak with a financial professional who can help determine your time horizon and risk tolerance.

These two factors will drive your asset allocation, help align risk to your situation and strive to limit the downside to your comfort level.

<Have a long-term perspective

The markets are always changing. If you check your portfolio performance every time there’s a shift in the markets, you will end up feeling overwhelmed and stressed.

If you maintain a long-term perspective and stay disciplined, especially if you’re more than 10 years from retirement, you can feel confident in your plan.

<Maintain proper asset allocation

Your portfolio should be reviewed annually to ensure it still reflects your appropriate level of risk. If it doesn’t, you may need to rebalance to keep your portfolio on the right track.

Rebalancing consistently is one of the most proactive measures an investor can take to avoid feeling the burn of a market downturn.

<Know the facts

Knowledge is essential for making informed decisions. Avoid falling prey to the media, which tends to exaggerate.

Instead, stick to the information you’ve gleaned from your financial professional and what you know about your personal risk tolerance and goals.


If you follow through with all of these steps, you may not need to take action during a market slump, and it may make more sense to stay the course.

The only long-term guarantee in investing is that there will be short-term fluctuations. We’ll experience bear and bull markets in the decades ahead, just as we have in the past decades.

Rather than fear change, prepare for it.

Lisa Strohm is founder and CEO of The Athena Network, a financial and life management firm in Upper Saucon Township, providing investment advice and financial planning offered through Good Life Advisors LLC, a registered investment adviser. (The Athena Network and Good Life Advisors are separate entities.) She provides fee-based financial planning and investment management for women, their spouses and extended families. She can be reached at 484-224-3439 or

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