What to Do if You're Freaking Out About Your 401(k) Right Now

If you’ve looked at your 401(k) (or IRA, or any other investments) since Monday, you might feel really anxious—chances are, the money you've saved has taken a huge hit. Given all the turmoil in the stock market right now and people's general panic around coronavirus, the world is kind of a shitshow right now, and it’s impacting your money. If you’re just starting your career and, for the first time, have a full-time job with benefits like a 401(k), you might be freaking out about what to do to protect your savings.

Though you may feel like you’re being penalized for trying to even save money in the first place, take a deep breath. First off, you have a 401(k). According to the Sightlines Financial Security Special Report from Stanford’s Center on Longevity, only about half of American workers of all ages are eligible for a work-based retirement plan. You're already ahead of the game.

Experiencing a drop like this for the first time can make you feel like you’ve “lost all of your money.” That’s not really the case. Right now you’re experiencing what is called an "unrealized loss." What that means: Yes, the value of your portfolio is lower right now—not permanently. If you hold tight and don't touch anything related to your 401(k)—your contribution or the actual money in it—it’s likely the value will go up again. Only if you actually sell right now, or lower your contributions to your 401(k) do you experience the loss in the stock market.

“When a stock temporarily loses value, you do not own any less of that company. It only means that at the moment, if you were to sell it, you would sell it for less than it was worth a few weeks ago,” explained investment educator Amanda Holden, founder of Invested Development. “The whole point of a stock—or the stock market in general—is to hold onto these investments and let them grow for many, many years. Growth never happens in a straight line up.”

If you plan on working until retirement age, you likely have 30 to 40 years to save for retirement. That’s literally another lifetime if you’re in your 20s or 30s. You’ll likely experience several of these drops in the market over the course of saving for retirement. Even though your 401(k) might not be doing so great right now, you probably won’t be touching that money for a very long time. What that means for your retirement is that you have plenty of time for this temporary loss of your savings to recover.

Much of the current panic affects day traders and those trying to play the market and turn a profit quickly. You’re not doing that. You’re playing the long game—and probably won’t be retiring any time soon—so this immediate drop won’t affect you in the immediate sense, or even necessarily in the longer term. And the current drop is probably not the last time you'll go through this.

"Market disruptions are normal—some are just more significant than others,” said Shannon McLay, a former financial advisor and founder of The Financial Gym. “It typically takes the market around two years to recover from setbacks. In the case of our most recent extreme market disruption in 2009, when the stock market dropped 50 percent from the previous year, it took four years to recover. You have plenty of time to weather a number of setbacks.”

Consider going on an information detox in order not to fuel your anxiety about your savings, since things will probably take some time to even back out. Continue to invest in your 401(k) like you normally do. “In investing, there's a universal principle that always must be true: Risk and reward are two sides of the same coin. You cannot have one without the other. The ‘risk’ we speak of in the stock market is what we're experiencing right now: a temporary loss in value of the companies that you own in your 401(k),” said Holden. “In the short-term, it can feel scary. Over the long-term, investors are rewarded if they keep their cool and keep adding money in on a regular, methodical basis over time. The stock market always moves higher over time—but it takes time to work.”

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