Market Turmoil and Your 401(k): Are You Properly Diversified to Ride the Storm?

It’s more of a robust correction than an abrupt shift from a bullish market, most stock market pundits and fund managers are telling their customers on this volatile trading Monday.
While the Dow plummeted more than 1,000 points — and the S&P 500 was down 120 points — only minutes after the market’s opening, the major indices “recovered” substantially later in the morning and early afternoon. The Dow rebounded to about 300 points down by late morning, and then about 150 points down by 12:30 p.m. EST. Later in the afternoon, however, the recovery lost steam and the Dow closed at nearly 600 points down. The S&P 500 closed nearly 80 points down.

The low point for the Dow on Monday morning was a decline of 1,089 points, or 6.6 percent. But even that’s nowhere near the drops of the stock market crashes of 1929 and 1987, percentage wise.
At current levels, both the Dow and the S&P 500 are in so-called corrections, which are defined as 10 percent declines from the most recent high.
Many see China’s stock market sell-offs as the main reason for the U.S. markets diving. But there is also concerns about the prospect of the Fed raising interest rates as soon as next month. Continued market volatility could push back that move by the U.S. central bank’s policy makers. Investors grew jittery two weeks ago when China devalued its currency. That move intensified concerns that the world’s second-largest economy — a big market for American products — is not nearly as robust as many thought.
Decline in Commodity Prices
Prolonged lower interest rates is not the only benefit that consumers can expect from the market instability.
The global market decline is extending to commodities, including crude oil, which is below $40 per barrel for the first time since the financial crisis six years ago.
That is good news for motorists — the national average for gasoline is $2.59 a gallon, down 14 cents in a month . However, it’s bad news for energy stocks, which make up a significant portion of Americans’ retirement portfolios, and state economies that depend on oil.
The Proper Mix for Your 401(k)s
Most investors in long-term retirement products, such as employer-sponsored 401(k)s, shouldn’t be concerned, unless your investments aren’t properly diversified and you plan to retire in a short period of time. Retirement advisers say that you should have a mix of large-cap, mid-cap and small-cap stocks, international stocks and government and corporate bonds.
Moreover, you should have money in a variety of industries. If you’re worried about riding out this particular volatility, then you may not be properly diversified.
Many older 401(k) account holders, including Baby Boomers close to retirement age, had stock allocations higher than those recommended for their age group, Fidelity Investments found in a study released earlier this month.
Average asset allocations to an age-based target date fund were reviewed and Fidelity found 18 percent of people ages 50-54 had a stock allocation at least 10 percentage points or higher than recommended. And for people ages 55-59, that figure increased to 27 percent.

Leave a Reply

Your email address will not be published. Required fields are marked *