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Make These 4 Moves if Your 401(k) Dipped in the Last Quarter

retirement 401k
Smart choice of funds can protect your from the cycle of recessions. StockSnap/pixabay.com

If you are thinking of breaking into your 401(k), take a step back and reassess. Make it your last resort, and look for other avenues such as personal loans for temporary relief.

Did you wonder why your employer-sponsored accounts had no protection from the wrath of the virus? Employers contribute to your 401(k) on your behalf but not in your best interests. Most of us are oblivious to the kind of funds employers invest our money in.

A dip in 401(k) asset value is inevitable during a recession but preventing massive losses by investing in the right funds is something you can control.

Before we delve further into simple tweaks, you should know that 401(k) is the largest retirement fund for most households. Since you can break it without penalties at 591/2 years of age with tax benefits, managing it smartly can help you live comfortably in your retirement years.

While millennials take retirement for granted thinking of time as an ally, soon-to-be retirees end up making decisions in haste. Most don't even understand the market trends and the process of handling their funds.

If you still have a job and will be contributing to your 401(k), make sure you do it in the right funds. Here are some effective tweaks that can dampen the waves of recessions so that your 401(k) grows steadily.

Selling High, Buying Low

401k matching
Rebalancing frequently keeps your portfolio withing budget allocation. Samer Daboul/pexels.com

Retirement plans are dynamic, you have to adapt like water with market movements and changing trends. Keeping your portfolio within the carefully designed budget allocation is key to steady growth. This is because the budget set for each genre of funds is based on your risk tolerance and future goals.

When the market shifts, your investments can move beyond the percentages set for each sector, be it automobile or pharma.

To adjust to the changes, you buy and sell funds. A healthy way to do that is to sell high and buy low. For instance, you sell your funds that grew in value to buy more of the stock that took a dip. This process is called rebalancing and should be done every quarter.

Employer Matching can Expedite Growth

You need to check if your employer has 401(k) matching programs.

Matching contributions are easy yet crucial. For example, if you contribute 6% of your paycheck to 401(k), your employee can match 50% of your contribution. If it's $100 from your paycheck every month, the employer will contribute $50. Some companies even offer 100% matching.

Even $150 per month will turn out to be more than $18,000 in 10 years with compounding interest. Also, try to increase your contribution by 1% every year as your pay increases gradually.

Diversify Smartly

There are certain things you need to know before you put your money in a company. Your future goals and risk tolerance play an important role in determining the right mix of funds. Millennials can afford an aggressive approach, whereas soon-to-be retirees should play safer with a conservative approach.

Putting your eggs in different baskets spreads out the risk across your investments. A fiduciary advisor can tell you about the funds best for your budget allocation. Finding the right mix of industries to invest in is an important step to protect your 401(k) from market crashes.

Save a Fortune on Investment Fees

401k advice
Professional advice can be life-changing if in alignment with your personal financial goals. energepic.com/pexels.com

Every month, your contribution is automatically deducted from your paycheck and invested in an employer-developed portfolio. This is not done keeping in mind the investment fee for each fund.

Investment fees can grow with your portfolio and significant money, you could've enjoyed after retirement, goes to companies your employer invests in. The goal here is to trap this chunk of money by investing in low-fee funds.

Careful, blindly investing in low-fee funds can reduce your investment fees but might not guarantee performance in the long-run. Again, you need to have good knowledge of investment strategies to find a good blend.

This outline of how a 401(k) works can help you feel a little confident about getting it back on track. But managing huge funds without any experience can backfire.

According to Mark Hebner, founder and president of Index Fund Advisors, Inc., "Many investors who do not work with a professional wealth advisor often allow short-term market movements to dictate their long-term investment strategy,".

He believes that people who are inexperienced become their own enemy by handling volatile funds.

If you are unsure of managing your lifelong savings on your own, an in-house fiduciary advisor can be your best option. Fiduciary advisor fees can be high. But if you can afford one, it can be the best option, especially in these trying times. Having a certified advisor walking you through detailed financial plans for better returns can be just the thing you need.

Usually, a good client-advisor relationship can last over decades, if they are a good match. The relationship grows with your portfolio, as you have the power of human intuition and experience working in your best interests.

Finding the right advisor is as important as building a retirement fund. Meeting a few of them before picking the right one is a good approach. Fiduciary advisors are legally bound to work in your best interests. They can be the guardian angel to your personal finances, always present to prevent you from making the wrong moves, especially when emotions are at full swing.

An emerging fintech firm called SmartAsset can match you with up to 3 certified fiduciary advisors near you within minutes. You can take a brief quiz, and their concierge team will connect you with advisors who can work in alignment with your goals. The firm helps over 65 million users make smart financial decisions.

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