A 401(k) is a retirement savings plan that allows employees and employers to contribute a certain amount of money into tax-advantaged investment accounts. The employee can typically choose from a wide range of investment options within the savings plan. The options commonly include mutual funds, typically selected by the employer. A 401(k) allows employees to invest in financial securities and create a reserve for their retirement. This means that 401(k) plans can be adversely affected during a stock market decline. If you are wondering whether it is possible to recover your investment after an economic downturn or recession, here’s everything you need to know:

With the current market, is my 401k going to recover?

Recently, there haven’t been many positive returns for most 401 (k) funds in the U.S. stock market. The high level of inflation and the fear that the U.S. Federal Reserve cannot control inflation without a recession are significantly affecting the stock market, ultimately negatively affecting 401(k) retirement funds. Market volatility is something you can expect as the market historically continues to have both highs and lows. To learn about Goodwin Investment Advisory’s thoughts on market volatility please read our blog titled, “Market Volatility: Should I get out of the market before it’s too late?”

When you see your 401(k) balance drop, it is essential to note that this situation is normal. Generally, the best thing to do in this situation is to avoid panicking and do nothing at all. Historically speaking, long-term gains typically outweigh your short-term losses. Therefore don’t sell your investment or withdraw early from the savings plan. Keeping your investment allows your 401(k) account balance to recover once the market recovers.

Where to invest in my 401(k)? Am I invested correctly?

The most common 401(k) investment options to maximize your portfolio include:

● Stock mutual funds

● Bond mutual funds

● Stable value funds

● Target-date mutual funds

● Specialized funds

The best way to make the most out of your investment is to consider your financial objectives, evaluate your risk tolerance, diversify, and assess your time horizon.

*Sidenote for business owners – If you are a business owner, running a 401(k) plan can be costly, so try to avoid investing in funds charging high fees. To learn more read below on how we can help you create your company 401(k) plan.

Did you know you have an advisor connected to your employee 401k plan you can contact?

Your company 401(k) plan includes a financial planner that is available to you to help you understand your investment options. This is a great resource that most 401(k) plan providers offer that most people are unaware of. You have free access to an advisor with whom you can talk to and ask any questions you may have. Although the support may be narrow, it is essential to make the most of this relationship since your company plan covers these services. At Goodwin Investment Advisory if you are one of our wealth management clients, we can give advice on your 401k even if we do not manage that asset. You can then choose to take our advice and talk to the advisor assigned to your company 401(k) and make adjustments that align with your risk tolerance, time horizon, and goals.

Will I be able to retire as planned?

You can lose your hard-earned money if the market takes a wrong turn at the wrong time. However, best practices like planning for the next bear market place you in a better position to maintain your current lifestyle, absorb the shock of the wrong turns, and retire as planned. If the stock market takes a sharp decline right before you plan to retire, we recommend you sit down with a financial planner who can provide you with advice about your options.

Other 401(k) questions you might have:

1. Will 401k limits increase in 2022-2023?

The Internal Revenue Service has set a limit on the amount of money to be contributed. The contribution limit in 2022 was increased to $20,500 from $19,500. The IRS will likely increase the contribution limit in 2023 to account for inflation.

2. What if I am self-employed or a small business owner – what are 401k options for me?

Small business owners can use a solo 401(k) plan, or Goodwin Investment Advisory can set up retirement plans for you and your employees. This is one of our specialized services and we would be happy to discuss the options available. At GIA, we know as a small business owner offering a 401(k) is an incentive to attract and retain high-level talented employees. Contact us if you are interested to help you set up your company’s first employer retirement plan, or help you to get a better option for your employees.

Schedule a Consultation with Goodwin Investment Advisory

Goodwin Investment Advisory can offer a solution whether you want help with financial investing, investment management, risk management, tax planning, estate planning, and other specialized services. To schedule an intro call with one of our consultants so we can hear your story and help guide you in your retirement plan click the link here.