Just a few months ago, the US economy was the strongest it had ever been, and the stock market was delivering its biggest returns in history. And then - bam! - two major events collided and stock market prices dropped.
Have you logged into your retirement and other investment accounts recently and wondered, “Where did my money go?” If so, you’re not alone and you should know that historically speaking, your accounts should bounce back.
What Happened to My Money?
In March 2020, two major events happened in the world. First, the Coronavirus, or COVID-19, really started to spread throughout US cities causing public school closures and stay-at-home orders throughout the nation that shuttered many types of businesses that were deemed “non-essential.”
Around the same time, two of the world’s major oil producers - Russia and Saudi Arabia - got into an oil pricing war. This caused the price of a barrel of oil to plummet overnight. Together, both of these worldwide events caused the US stock market to crash.
What Happens When the Stock Market Crashes?
Your investment portfolio is comprised of items like mutual funds, index funds, exchange-traded funds (ETFs), bonds, and single stocks. Each of these investment options is bought and sold on business days on the New York Stock Exchange (NYSE).
When these items sell for a higher price, the value of your investment portfolio goes up. When they sell for a lower price, your investment portfolio value goes down.
When the Coronavirus and Russia/Saudi Arabia oil pricing war hit together, the stock market dropped about 40%. While as of the writing of this blog post, the market has recovered a bit, it’s still far below the value of what it was at the beginning of 2020.
What Should I Do?
The short answer for most people with a long-term plan is to keep their money invested in the stock market and continue investing in their 401(k) and other investment funds. The reason - the only people who get hurt on a roller coaster is the ones who jump off.
When you work with us, your 401(k) and other investments are purchased based on your risk tolerance level, which is directly related to how long you have before you reach retirement age. Typically, the younger you are, the more aggressive your investments should be. As you get closer to retirement age, you should work with us to rebalance your investments to possibly have a more conservative allocation that won’t take as big of hits when the stock market dips.
Let’s say, however, that you weren’t already working with us or another investment professional before this recent stock market drop. If you’re reaching retirement age and you’ve seen your 401(k) dramatically drop, you may be more comfortable switching to more conservative investment options moving forward. The best way to find out if this scenario fits your situation is to sit down with us for an appointment.
If Left Untouched, Will My 401(k) Recover?
While no financial advisor can predict the future of the stock market, historically speaking, it has always recovered. While we don’t know for certain what will happen in the age after Coronavirus, we do know that history is on our side and that it’s likely the stock market will soar again in the future.
Reach out to Us for Personalized Advice
If you have questions about the current state of your 401(k), or you have an old 401(k), we can help. Simply call us to schedule an appointment at (985) 792-5232.
401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 ½ may be subject to a 10% federal tax penalty.
Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Past performance may not be indicative of future results. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investors should consult their investment professional prior to making an investment decision. Expressions of opinion are as of this date and are subject to change without notice.