Market Madness Got Your Participants in a Panic? Be Proactive! Unless you’ve been living under a rock, you’ve probably noticed the stock market has been, well, kind of volatile these past few weeks. It’s been up, it’s been way down, it’s been all over the place. There is any number of reasons for this: rising interest rates, inflation, climbing bond yields and an over-valued stock market, which many have opined was long overdue for a correction (when stocks drop 10% from their highs).
Is this the “beginning of the end” of the nine-year-long bull market? Market watchers haven’t exactly said that yet, but some are starting to get a little skittish. And so, too, might your retirement plan participants as they watch account balances that have soared for years start to lose some of their value. You might get more questions from participants than usual about their investments. They might seem anxious. Some might even consider pulling their money out of stocks and putting it in more conservative options like bonds or stable value funds to try to stem some of the losses they may be experiencing.
What can you do to help? Well, the biggest takeaway here is to send this message: “don’t panic.” Retirement investing is a “for the long haul” deal, and most participants with a time horizon of 15 years or more until their planned retirement shouldn’t be freaking out about market declines. They have plenty of time to continue to grow their money slowly and steadily and to make up for any losses they may experience while the markets do whatever they’re currently doing. As the old saying goes, this too shall pass.
Thanks to the power of dollar cost averaging, which is essentially what participants are doing by contributing to their accounts and investing the money every pay period, they’ll actually be able to buy stocks at a lower price while the market is down, then watch their money grow as prices go back up. It’s a pretty sweet deal. On top of that, if time is on their side, the magic of compound interest means their money will continue to grow until they reach retirement age. So, for participants with a longer time horizon, it’s all good.
What about older participants that are closer to retirement? Well, that’s a bit of a tricky wicket. Hopefully, they’ve already started to adjust their portfolio’s asset allocation and move their money to more conservative options as they’ve gotten closer to retirement. Either way, this is a great time to encourage them to do a portfolio check-up and schedule a meeting with your plan’s financial advisor (if you have one) or their personal financial planner (if they have one) to make sure their retirement savings are allocated as appropriate for their age and stage of life.
Of course, most of this advice applies to participants who are self-directing their retirement investments. Those in target-date funds enjoy the benefits of diversification, along with automatic rebalancing and, at least with actively managed portfolios, the experience of fund managers who should, in theory, adjust the allocations to ride out these volatile times and preserve as much capital for investors as they can. In short, if you’ve chosen your plan’s target date funds wisely, they should be in good hands.
That said, it’s a good idea to check with your target date fund provider to find out what their managers are thinking about the current market environment and what their plan of action is for rebalancing the funds’ allocations. Actually, it’s a good idea to touch base with the investment managers for all of the funds in your plan to see how they view the market and how they plan to handle the investments during this volatile time. Or check in with your advisor and ask them to get a bead on your plan’s funds. That would be the prudent —and smart — thing to do.
In short, it’s a bit of a wild ride right now as we wait to see where the markets are headed next. Up, down, sideways, upside down — no one really knows. However, you can be proactive by letting your participants know you’re available to answer questions, reminding them not to panic, encouraging them to meet with your plan’s advisor (or their personal financial advisor), and checking in with your investment fund managers and plan advisor to make sure they’re doing their jobs and that the funds are still meeting the needs of your plan and participants.
In short, take deep breaths. These are unpredictable times, but at least as far as we know, things still look pretty good. The market’s underlying fundamentals are strong, corporate profits are rising, the economy is still growing, there are more jobs than there are people to fill them, and inflation is still quite low. Now isn’t the time to panic, but it’s a great time to be proactive.
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