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retirement

In Your 40s with Money in a 401(k)? Don't Let This Bear Market Derail Your Financial Plan

For most investors in their 40s, this downturn could be their first real test. You probably feel like taking action to protect yourself, but before you do, read this.

The recent bear market has impacted virtually every investor. It’s had a very different impact on investors in their 40s.

There are approximately 40 million U.S. residents between ages 40 and 49. They were much younger during the Great Recession of 2008-2009 and likely had much smaller investment portfolios. During the past decade, many have invested methodically and seen their nest eggs swell. So, make no mistake, this current downturn stings. It’s likely their first real bear market experience.

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I recently spoke with a client in her early 40s who has built an impressive amount of wealth in the past decade. Here’s what she said: “I know this volatility is short-term, and it doesn’t affect my long-term plan. So, I should stay invested ... right?”

Her statement reflects the concerns of many people. They are successful, financially savvy and have a good sense of the actions they need to take — or not take — during these troubled times. But knowing the right thing to do doesn’t make it easy. For the first time ever, a large amount of their investments is at risk. They need to be reassured that sticking to the plan truly is what they need to be doing right now.

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For investors in their 40s — climbing toward the peak of their corporate careers or business — I realize there is much more at stake now than a decade ago. Here are three pieces of advice that will help remind you about the importance of staying the course for your long-term financial plan.

Think Before You Act

If you have a six- or seven-figure investment portfolio, it’s easy to think about selling at least part of your holdings and dumping them into cash. Why not save at least part of your hard-earned investments, right?

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Wrong. Remember, successful long-term investors want to buy low and sell high. If you sell investments now, you are very likely selling at prices much lower than we’ll see in the future. One of the greatest mistakes you can make is to cauterize temporary investment losses as permanent by selling at a loss.

Consider this exercise: If you find yourself tempted to act quickly despite knowing it’s not in your long-term best interest, wait one 24-hour news cycle before selling. It's amazing how much our perspectives, and the stock market, can change in such a short period of time.

Seek the Counsel of Someone You Trust

If you have a strong working relationship with a financial adviser, speak with them about your investment portfolio before you make any changes. If you don’t have an adviser, speak with one now before pulling the plug.

At the very least, it often helps to run your ideas by someone your trust — a friend, parent or colleague. Sometimes, when we hear ourselves voice our concerns out loud, it helps re-center our mind on what we know to be true.

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In recent weeks, I’ve helped reassure several young investors that they should trust their own gut and stay invested. And — if they understand the risk/reward scenario — maybe even invest more money into stocks. I’m not providing unusual advice. They just need reassurance their current strategy is still sound.

Reframe Your Investment Outlook

During a crisis, it’s natural to want to take some action. We want to do something that we believe will have an impact on the outcome. That’s one reason so many people feel the urge to do something when markets are volatile.

I remind my clients that we’ve done all the hard work and preparation into building their financial plan before the storm comes. And, based on history, the average investor will experience more than a dozen bear markets during their investing lifetime — now is just one of them.

With the proper allocation of assets, an investment portfolio should be built to prepare for these types of markets. It shouldn’t require tinkering in the middle of a downturn. By panicking and reshuffling the deck with a stock market off 20% to 30% from its record level, an investor only hurts themselves in the long run.

For those 40 million people in their 40s, I understand it’s a difficult time. But bear markets are normal and, yes, there will be others in your lifetime. In the meantime, I encourage you to maintain an investment portfolio that makes your long-term financial goals a top priority. It will serve you well.

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About the Author

Josh Monroe, CFP®, ChFC

Financial Planner, Brightworth

Josh Monroe is a CERTIFIED FINANCIAL PLANNER™ practitioner and a Chartered Financial Consultant designee who listens actively and plans thoughtfully to help clients achieve their goals. He joined the Brightworth team in 2019 as a Financial Planner. Before Brightworth, Josh spent eight years at a leading insurance and investment firm in a variety of roles, including compliance and supervision. Josh is passionate about financial planning and making complex concepts easy to understand.

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