The post below is originally from 2020…but the information is consistent with the most recent pullback that began in January 2022..as always, consult with your financial advisor to determine how you should react during a market pullback since he or she will know your current financial situation.
The last few weeks have seen Coronavirus fears send the market down quickly and might have made Lockheed Martin pre-retirees forget about 2019 altogether.
A market correction is when a major index like the S&P 500 falls 10% or more below it’s recent high. They happen on average once a year, but don’t always turn into bear markets (20% or more off of market highs) but that doesn’t mean they are comfortable.
So what should Lockheed 401k participants do when the market drops?
(Note – this will look a lot like my October 2018 market correction post – because spoiler alert – my advice is still the same!)
Don’t Panic.
These are normal occurrences in the market. Although past performance is not a guarantee of future results, each and every time there’s been a market correction, there has been a recovery at some point down the road. We don’t know how long the pullback will last, and there’s usually something different causing the pullback (Dot.com bubble, mortgage crisis, Brexit, H1N1, Coronavirus, etc.) but there has always been a new market high set after the downturn.
Even if you are one, two or three years away from retirement and you can withstand the volatility, it’s a good idea to stick to your investment plan you were OK with when things were calm. You still have time to recover if you continue to invest in your 401k and other investment accounts, even in retirement.
Continuing to add to your 401k might also give your retirement nest egg a nice bump when the market recovers. Dollar cost averaging, or adding the same amount to your accounts each month regardless of current prices is a great way to take advantage of the current market pullback. You’re buying more shares at lower costs and fewer shares at higher costs. It’s a great way to bring your average price per share lower.
Re-evaluate your investments
Do you still like the investments you held before and after the market correction? Market corrections are a good reminder to take a look at your portfolio and make sure you still feel like your holdings are good investments, even when they are down around 10% from where they were a few weeks ago.
Over-weighted in Lockheed stock? It might be a good time to diversify your 401k by moving funds to your other investments that might be selling at a lower price vs. where we were a few weeks ago.
Don’t try to time the market
The brightest minds on Wall Street attempt this all the time, and a majority of the time they are wrong. Don’t try to get out of the market and get back in after things normalize. Usually when you feel better about investing back into the market, it’s a lot higher than where you sold, and now you’ve really put yourself into a bind, selling low and buying high.
Missing the best days of a market recovery can be detrimental to your long-term financial plan.
Invest for the long term
Yes, even if you are retiring tomorrow, invest for the long term. Unless you’ve got way more dough socked away for your retirement than you could ever spend, you’ll need to make sure your money lasts.
The best way to keep up with the rising costs of the essentials like food, housing and health care over a long period of time is investing a portion of your portfolio in stocks.
According to the Society of Actuaries, there is a 50% chance that at least one spouse of a 65 year-old couple will live to be 94 years old. If they both retired at 65, that’s almost 30 years of retirement income!
In-service withdrawals
If you are like many Lockheed employees, a majority of your net worth might be sitting in your 401k and ESOP plan. If that’s the case, you might consider an in-service withdrawal. This allows you to rollover a portion of your retirement funds out of your 401k and into an IRA account – even though you are still working. An inservice-withdrawal might allow you a few additional investment choices in your IRA that are not available in your 401k plan. For more info, see this post.
Market corrections can be scary and uncomfortable – especially if you tend to watch your account regularly. If you’re worried about your long term-retirement outlook, feel free to shoot me an email at Brian@TheAeroAdvisor.com.
The opinions voiced in this material are for general information only. They are not intended to provide specific advice or recommendations for any individual, nor intended as tax advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
