Turmoil on Wall Street is keeping financial planners’ phones ringing as 401(k) holders watch their retirement account balances fall with the stock markets they’re tied to. For the most part, they’re being told to sit tight and breathe through it.
“I’ve seen more concern and fear with clients that I’ve talked to over the last month or so than I have since the financial crisis,” said Jude Boudreaux, a senior financial planner at the Planning Center, a New Orleans-based firm. He added that this week has been especially hectic. “People are really concerned.”
Vanese Pitts said she watched her husband’s 401(k) shed $8,000 on Monday, when a wide-ranging market sell-off pushed the S&P 500 to its lowest close since September. The sharp downturn in recent days followed several weeks of losses on Wall Street that have left the stock index about 4.8% lower than where it started the year. Many 401(k)s follow the broad-based S&P closely.“It was just insane,” said the 41-year-old, who’s raising two kids alongside her husband, a software engineer, in Birmingham, Alabama.
Pitts was among those who took to social media platforms to crowdsource advice and commiserate this week, as President Donald Trump’s trade war with America’s closest allies sends tremors through millions of savers’ retirement investments. His chaotic rollout of new tariffs, the retaliatory levies they’ve triggered, and an ongoing purge of federal workers have stoked fears of rebounding inflation and a potential economic downturn.
Lee Baker, founder and president of Claris Financial Advisors in Atlanta, said he’d been fielding anxious calls from clients — most of them in or near retirement — for the past week or so. He was surprised to hear so much concern “from people who, mathematically, really don’t have a problem in terms of making it through whatever this might be,” he said.
I’ve seen more concern and fear with clients that I’ve talked to over the last month or so than I have since the financial crisis.
Jude Boudreaux, The Planning Center, New Orleans
“Clients, particularly in times like these, don’t want to hear ‘Essentially, do nothing. It’s going to be all right,’” Baker said.That was the gist of Katie Szykman’s mother’s advice when the 23-year-old Philadelphian called in a panic. She had been contributing 6% of her paycheck to her employer’s 403(b) — a type of retirement account offered by public schools and charities — for barely two years and watched more than $1,000 vanished in a matter of days, she said.
“My mom was like, ‘Don’t even touch it,’” said Szykman, who works in marketing at a local nonprofit. “Everyone was always saying make sure you invest in your retirement, so [that was] the first thing I did once I got my first job outside of college. I can’t say that I’m surprised. It just feels disheartening a little bit.”
Szykman said she found some comfort knowing that downturns have occurred in recent decades and that “people have gotten out of it.” Still, she feels frustrated having another economy-related issue to worry about — especially when “it didn’t have to be this way,” she said.
“Having that money just kind of diminish a little bit when groceries are so expensive, it just takes a little bit of an extra toll,” she added.Plenty of retirement savers have forgone the advice of Szykman’s mother. Empower, a financial firm that administers retirement plans for some 19 million investors, told CNBC Wednesday that some account holders are increasingly shifting money toward safer investments. though the company emphasized that it’s “not seeing widespread capitulation despite the downturn.”
While the activity accounts for only a sliver of overall balances, trading in 401(k)s has doubled over the past three weeks as savers yank money out of funds calibrated toward a target retirement date and those linked to big companies’ stocks, according to the Alight Solutions 401(k) index. Lower-risk investments including government bonds, money market accounts and so-called stable value funds have swelled over the same period.
Financial planners generally urge clients to think carefully before adjusting their 401(k)s, though changing the makeup of an account’s portfolio is far different than withdrawing funds early, which entails paying a penalty.
In terms of investments, Baker said those looking to build some cushion into their portfolios could look to TIPS, or Treasury inflation-protected securities, which are indexed to inflation to guard investors from a decline in purchasing power. TIPS funds have returned an average 3.4% so far this year, according to Morningstar, making it a top-performing bond fund category.
He also pointed to a recent uptake in “buffered products” like S&P 500-tracked exchange-traded funds, where high-performing assets are locked and evenly proportioned for a period of time. But investors who move in that direction should be comfortable missing out on potential gains, Baker warned. If markets reverse and bound higher, “remember we had this conversation, because in this moment you were afraid,” he said.
Some planners also advised having a good mix of international funds in their portfolios.
Previously, “international [stocks were] something that you kind of had to apologize for” as an adviser, said Samuel Deane, founder and president of Rora Wealth in Atlanta. But some ETFs that exclude U.S. stocks have been performing remarkably well, he said.
Boudreaux agreed but pointed out that many international companies’ revenues are heavily linked to the U.S. market, limiting the potential appeal of foreign stocks.
“It’s a very globally connected world, and that applies to our investments also,” he said.
Clients, particularly in times like these, don’t want to hear ‘Essentially, do nothing. It’s going to be all right.’
Lee Baker, Claris Financial Advisors, Atlanta
Planners also said it’s OK to take a more conservative approach with future retirement contributions rather than touching what’s already there.“People are tightening up,” said Kevin Mahoney, founder of Illumint, a Washington, D.C.-based firm. “So there’s some uncertainty about spending or investing savings now. It’s less about existing investments and more focus on potential investments that they might have planned.”
And for investors nearer to retirement than others, now is also a good time to focus on cash flow, said Boudreaux.
“I like clients to have a good cash reserve heading into retirement,” he said. “It allows them to be more selective when they sell from their portfolio, and to not have to sell every month if we are heading into a downturn.”
“The goal with any of these things is to respond — and not react,” he added.
As difficult as it’s been for Pitts to “just let it stay and hope for the best,” she said she and her husband aren’t touching their retirement funds. Instead, they’re thinking about getting a financial adviser to help them protect their savings.
“Every day it’s something different,” Pitts said. “Something that’s not good.”
