What to Do With Your 401k in Light of Recession?

The thing about recession is that you never really know if and when it may happen. And yet, it is somehow always lurking. Well, okay, not always, but definitely in the last couple of years. We are witnessing quite some economic turmoil, and that is bound to affect the market, increasing its volatility. A volatile market is the nightmare of investors, though, meaning you have to do something about it, with the goal of protecting yourself.

For one thing, market volatility is bound to impact the value of your 401k plan. So, what should you do with it in light of recession? Should you just wait things out and hope for the best, or should you, perhaps, start developing a strategy that could keep you well protected? Naturally, the former is not the best idea, and the latter is actually a necessity. After all, you don’t want to wind up losing what you have been saving for a long time.

If you’re thinking of a rollover, which is definitely one of your options, this could help you do it right: https://www.livemint.com/brand-stories/how-to-move-401-k-to-gold-without-penalty-gold-ira-rollover-guide-11687282547240.html

Anyway, there are certainly some important steps you can take when aiming at protecting yourself in light of recession. Once again, you can’t know if and when it is coming, but you should be cautious enough not to leave things up to chance. After all, recent economic events are certainly indicating that we are not in for a good time, which is why acting right away is definitely important. Let us, therefore, tell you what you should do.

1. Assess Your Current Portfolio

You have been building your portfolio for a while, but here is a question for you. Have you ever stopped to review and assess it? This is something that, as an investor, you should do on a regular basis, even if you’re not worried about recession. If, however, you are worried about recession, then this becomes one of the crucial steps to take when aiming at protecting yourself.

So, take a look at your current portfolio, and take the time to examine the investment mix. Make sure that it aligns with your retirement timeline, as well as with your risk tolerance. Think about the changes you could make so as to increase the stability of the portfolio, as well as to have the investment mix perfectly aligned with those saving goals you have. Remember to check if you may be taking unnecessary risks with some assets, as that is certainly not what you want, especially not when you are worried about recession.

2. Increase the Emergency Fund

Increasing your emergency fund is another important step you may want to take in light of recession. Sure, your 401k should still be your primary focus when it comes to saving for retirement, but that doesn’t mean that you shouldn’t have an emergency fund at all. In fact, it would be great if you could have at least three months’ worth of living expenses in a liquid account. And, when you suspect that recession is on the way, you should increase that from three months to at least six. This way, you will avoid tapping into your retirement account if you wind up facing some unexpected costs.

3. Go for More Bonds

What can you do with your 401k specifically, though? Well, for one thing, you can think about getting more bonds as a part of your safety strategy. Most investors opt for US Treasury bonds, given that they have long been considered as one of the safest assets out there. There is absolutely no doubt that these assets are valuable and that they are often safe investing in.

But, that doesn’t mean that they are without risk. The fact that the US hasn’t defaulted on a bond in decades is a reassuring one. Still, that doesn’t mean that something like that cannot happen in the future. So, even though this may be one of the options for your 401k, we cannot deny the fact that it can be a risky one.

4. Get Cash

Apart from this, you could also decide to hold cash, as it has definitely proven to be a good idea in the past. Once again, though, it is still not without risk. To buy it with your 401k funds, you would have to take a distribution from the account, which would make you subject to taxes. And, the percentage of taxes depends on your overall income, meaning that it could go even higher than 30%, which is certainly a lot. On top of all that, the problem with cash is that it doesn’t yield anything, which further means that it will lose value during inflation.

5. Consider Precious Metals

Here is an option that actually carries lowest risks. Investing in precious metals with your 401k. In this case, you will have to cooperate with Goldco or a similar company that will allow you to buy precious metals. This is a good option because precious metals are known for retaining their stability and performing well in times of recession. So, with these assets, your portfolio will be quite well protected.

Of course, there is the question of how you can do this with your 401k. Well, in short, you can’t exactly invest in physical gold with this account. But, there is a solution to that problem, and a lot of investors are actually using it in recent times, aiming at protecting their portfolios and getting properly prepared for recession, arming themselves with assets that are stable and valuable.

The solution I am talking about consists of you setting up a precious metals IRA and then rolling over the funds from your 401k to it. When you set up the IRA, you will need to choose a custodian that will guide you through the whole process and that will also help you do the rollover correctly, so as to avoid penalties. And, once all of that is done, you will be ready to invest in precious metals and thus keep your retirement portfolio safe even during recession.

Leave a Comment