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What Should You Do Now About Your 401(k)?

What Should You Do Now About Your 401(k)?

| October 14, 2020
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To say that 2020 has thrown us a few curveballs is putting it mildly! You are undoubtedly experiencing some anxiety concerning your retirement plans (among other things). And although much is out of your hands right now, take comfort in knowing that there are some steps you can take to help reduce some of your loss.

This is a perfect time to reassess and follow through with proven investing strategies that will allow you and your portfolio to come through this difficult time on the other side. Let’s start with 4 things you can do about your 401(k) right now.

1. Determine Your True Risk Tolerance

Has the drop in the market made you question how much risk you are willing to take? Depending on your financial situation and what age you hope to retire at, your true risk tolerance is likely being tested right now.

That’s why it’s important to take some time to sit down and assess if your money is properly diversified and how your assets are allocated. Ask yourself, “Are all my eggs in one basket?” and “What percentage of my assets are in high-risk investments?”

In the most basic of definitions, diversification is making sure your investments are in a combination of stocks, bonds, cash, real estate, and other asset classes—not all tied up in single stocks or one kind of investment. Asset allocation is how you assign what percentage of your portfolio is in higher-risk investments versus lower, depending on what you determine you are comfortable with.

Remember, diversification does not guarantee enhanced returns, but it does offer more protection than a portfolio that is heavily weighted in only a few investments. 

2. Consider A Roth Conversion

One way to take advantage of low values in your 401(k) is by converting money from your traditional 401(k) account into a Roth 401(k). Normally, you would need to pay taxes on the gains in your traditional 401(k) since contributions are made with pre-tax dollars. However, since the values may be down, as well as your income, it alleviates the amount you’ll have to pay in taxes at the end of the year. When you do this, money in your Roth grows tax-free, unlike money in your traditional 401(k) that will be taxed when you start taking withdrawals in retirement.

3. Buy On Sale

While it may feel counterintuitive, any money you invest in a down market means you are buying stocks at a lower price. We don’t know when these “market drops” will happen and how long it will take to see the benefit of our purchase, but history tells us that it’s only a matter of when, not if it will happen. This is a graph of the S&P 500 Index over the last 20 years to date, which is a benchmark representation of the stock market. Based on the long track record of the market going up, regardless of the down markets we’ve had, this should encourage you to confidently buy and also to follow #4!  *past performance is not a guarantee of future results.

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4. Look, But Don’t Touch

Just like health officials encourage you to not touch your face, we encourage you to not withdraw funds from your 401(k). As you can see from the previous points, there are many ways you can increase your portfolio in the long run and minimize risk at the same time without taking money out of your retirement. What most people don’t understand is that the only time you are guaranteed to lose money is when you buy high and sell low, which is what would happen if you withdraw from your investments when they are down.

We understand this pandemic has some in a tight spot financially, and if that is the case, let’s work together to assess what the best options are for you moving forward.

Make Sure Your Accounts Are Set Up For Success

We understand that these are scary times, but don’t let current events paralyze you and jeopardize your future. Regardless of how volatile the markets remain over the next few months, taking advantage of these options can help set your retirement up for success.

At T.A. Holland & Co., your financial future is our top priority. We would love to sit down with you to discuss your questions, concerns, and goals, as well as our process in working with clients so we can see if we’d be a good match for you. Reach out to us at info@taholland.com or 617-523-5656 to schedule a complimentary appointment.

About T.A. Holland & Co.

T.A. Holland & Co. was founded in Boston, Massachusetts, in 1920 and serves individuals and businesses throughout the country with their financial needs. We provide cutting-edge financial services with a broad array of solutions to help our clients grow and preserve their wealth. We have seen good and bad economic times. Throughout it all, T.A. Holland & Co. has thrived by always making the customer our number-one priority. We get to know you and understand your needs so we can provide you with the proper guidance and strategies. Our senior vice president, John Hellmuth, has been at the helm of T.A. Holland’s financial services since 1990, but he doesn’t do this job alone. He is joined by his two children, Lindsay Hellmuth and Thomas Hellmuth. As CERTIFIED FINANCIAL PLANNER® (CFP®) practitioners, our financial services team has the knowledge and experience to help you solve your most pressing financial challenges. To learn more about how we can help you, visit our website and reach out to us to schedule a complimentary get-acquainted meeting.

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(1) https://www.macrotrends.net/2324/sp-500-historical-chart-data

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