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4 Ways To Protect Your 401(k) Portfolio From COVID-19

3-Minute ReadUPDATED: June 03, 2022


If you’re feeling concerned about the effect the COVID-19 pandemic is having on your 401(k), then you’re in good company. Not only are many people concerned about catching the virus, but the pandemic is causing financial stress as well. 

The ambiguity surrounding COVID-19 and its effects on the stock market have greatly impacted the economy. You have likely seen your investments take a significant hit over the past several months. It’s completely normal to be worried about your investments and wonder what you should do next.

But in times of uncertainty, it’s also important to avoid being reactive. Having a solid plan for protecting your investments is the best way to keep your retirement savings on track.

Four Ways To Protect Your Portfolio

States are beginning to reopen and many people are returning to the office, but that doesn’t mean fears surrounding COVID-19 have disappeared. The uncertainty will likely continue for most of 2020. In the meantime, here are four ways you can protect your 401(k).

1. Avoid Panicking

For most people, few things cause greater stress than financial instability. You’ve worked hard to save for retirement, so it’s scary to think an economic downturn could take all of that away.

However, the best thing you can do for your portfolio is to decide not to panic. One economic downturn can’t take away years of hard work and savings. Your 401(k) and other investments are long-term strategies, so there’s no need to panic over temporary market volatility. Your balance is down right now, but it’ll go back up when the market goes back up.

Of course, deciding not to panic is easier said than done. The best way to stay calm is to review your investments and focus on the facts. But don’t check your 401(k) balance too often; looking at it every day will likely just make you feel more worried. 

2. Evaluate Your Current Setup And Reallocate As Necessary

It’s a good idea to sit down and evaluate the current setup of your portfolio. Getting scared and changing things arbitrarily isn’t a good idea, but you may want to reallocate some of your assets to protect yourself from being overly exposed in one area.

You should contact your financial planner before making any changes to your portfolio. You can talk to them about how to manage your investment portfolio and possible changes you could make in light of the current economic conditions. 

One of the best ways you can protect your portfolio is by diversifying your assets. Ideally, your portfolio will spread out across a combination of stocks, bonds and alternative investments.

Fidelity found that diversifying your portfolio can help you significantly reduce your risk in an economic downturn. Individuals with diversified portfolios lost an average of 35% during the financial crisis. In comparison, individuals with stock-only portfolios lost an average of 49.7%.

3. Build Up Your 6-Month Emergency Fund

Anytime an economic recession occurs, it’s a good idea to have a cash reserve on hand. If you haven’t already, start building up your six-month emergency fund. 

An emergency fund will provide peace of mind if a financial emergency arises or if you suddenly lose your job. And most importantly, it will help you survive a low-income budget so you can avoid dipping into your 401(k) savings and throwing your retirement plans off course.

Consider opening up a money market or high-interest savings account. The funds will be easy to access in the event of an emergency, but you’ll earn more in interest than you would with a traditional savings account. 

If your finances are already tight and you just don’t see a way to save any extra money, you can consider temporarily delaying your 401(k) contributions. It’s not the ideal course of action, but it may be the right decision if it helps you build up your savings. 

You can check out this blog post for more information on how to create an emergency fund

4. Consider Delaying Retirement

If you are planning to retire in the next year or two, you should consider waiting. This can be a tough decision to make, especially if you’ve been looking forward to retirement for a long time.

But withdrawing money from your 401(k) right now means you’ll have less money to retire on. You may find that retirement isn’t very enjoyable if you’re aren’t as financially stable. 

If you can, try to give it at least a year before you begin making withdrawals from your 401(k). It’s possible the market will improve somewhat by then, putting you back on track toward your retirement goals. 

Final Thoughts

Market downturns are stressful for everyone because it can feel like your entire financial future is at risk. But choosing not to panic, reallocating your assets as needed, building an emergency fund and delaying retirement are options to help you get through this challenging time.

It’s also important to remember that you don’t have to go this alone. If you don’t have an existing relationship with a financial planner, now is a great time to find one. 

The right financial planner will give you an objective view of your 401(k) retirement plan and offer strategic advice about things you can do differently. Be sure to keep checking out our financial smarts section for more personal finance tips.  


Rocket Loans does not provide legal, tax or investment advice. The information herein is general in nature and should not be considered legal, tax or investment advice. Consult a professional regarding your specific situation.