U.S. Stock markets continued to fall on Friday as a result of President Donald Trump’s sweeping tariffs, sending millions of Americans’ 401(k) retirement funds plummeting and sparking fears of an impending recession.
Trump’s unveiling of worldwide tariffs, set to at least a universal 10 percent, led to negative market reaction as people anticipate goods to become more expensive as a result. The Dow Jones Industrial Average was down more than 3 percent on Thursday and continued dropped over 1600 points on Friday morning. The S&P 500 fell 4.8 percent, and Nasdaq followed similar trends.
Since a 401(k) relies on long-term investments in market-related securities such as stocks, when the market is down, a 401(k) goes down too.
About a third of working-age individuals in the U.S. participate in a 401(k)-style retirement plan, according to the U.S. Census. This means that millions of people rely on workplace-sponsored plans for retirement money.
Seeing drops in the stock market and 401(k) can be stressful, but experts across the board agree it’s best not to panic.
How do markets impact your 401(k)?
The value of 401(k) accounts is closely tied to the stock market because many offer investments in mutual funds, which are a combination of diversified investments, including stocks.
When the stock market fluctuates, potentially as a result of economic, political or social policy, so does the value of 401(k)s.
After Trump announced his tariffs on the so-called “Liberation Day,” investors pulled investments from the stock market – which is short-term and risky – knowing that higher prices on goods or trade restrictions could impact companies. Instead, people will move money to longer-term or safer investments.
Although the stock market experiences volatility often, large single-day drops can cause panic. But most experts agree that the best thing to do is wait it out.
What should you do?
Most personal finance experts agree that it’s best to leave your money in a 401(k) even when the market is going down – especially for younger people.
“If you’re 15 or 20 years away from retirement, stay the course. You still have a lot of years ahead if you plan to retire in your early or late 60s. And because you still have time, you don’t want to be too conservative and miss out on higher returns,” Michelle Singletary, a personal finance columnist for The Washington Post wrote.
Callie Cox, the chief market strategist for Ritholtz Wealth Management, echoed Singletary’s advice.
The chief investment strategist at CFRA Research, Sam Stovall, told AARP that data shows in every market pullback since World War II, the market regained lost ground between a month and a half and four months during corrections.
The advice remains roughly the same for workers nearing retirement age. Experts suggest that people move to more conservative investments to shield their savings from market volatility, and avoid any knee-jerk reactions.
“I would still say they should be saving. Should they be investing in an S&P 500 index? Maybe not,” Sarah Behr, a registered investment advisor and founder of Simplify Financial Planning told USA Today. “Say you’re 63 and plan to retire in five years. You should already be shifting to more conservative investments.”
Those who have already retired, Behr said, should do what they can to avoid selling stock when the market drops.
“You’re drawing cash. Maybe you’re also changing some of your consumption behavior, like maybe you’re not traveling this summer, or you’re not dining out as much,” she added.
The best course of action may be the action Trump himself told reporters on Thursday when asked about retirement worries.
“I haven’t checked my 401(k).”
