He may want to switch some of his funds from stocks to bonds, but the mistake most people make is that they stop buying and start selling when the market goes down, which is the best time to buy and buy.

The markets eventually go up. And up. And up.

If anything, he should increase his contribution at this point.

Last edited Tue Apr 8, 2025, 08:19 AM - Edit history (3)

term record of equities?

The S&P 500 closed Monday April 7 at 5062 -- down 17.6% from its Feb 19 all time high value of 6144 -- so we're more than half way down to the 30% plunge.

Let's see what the situation would be if the S&P 500 closes tomorrow, 4/8/25, at 4301, 30% down from its all time high. What would that do to the S&P 500 long term record? Turn it to an at-best ho-hum plain vanilla return that definitely isn't worth the risk and anxiety?

Source of the year-end values in the upper table:
    http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

What a lump sum $100 investment in the S&P 500 at the end of 1927 would grow to, including reinvested dividends



Then over the last 10.27 years, the S&P 500 with dividends reinvested would still have increased 2.477 fold (a 9.23% annualized rate of return)

And over the last 20.27 years, it would still have increased 5.157 fold (a 8.43% annualized rate of return)

And over the last 30.27 years, it would still have increased 15.943 fold (a 9.58% annualized rate of return)

and so on.

Technical Note - The reason for figuring numbers over the last 10.27 years, the last 20.27 years, etc., rather than the last 10 years, last 20 years, etc. like a normal human would, is because it would be a lot more work; every time I updated this table I would have to look up the S&P 500 adjusted value at 10 years ago, 20 years ago, etc. for a total of 7 such values and then plug them into the speadsheet (Adjusted means taking into account reinvested dividends). More on this at
    https://www.democraticunderground.com/1116100100#post2

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The plunges table - S&P 500 bear market crashes (since 1929, 13 bear markets) with peak-to-trough index drops, with 1-year, 3-year, and 5-year post trough total returns S&P 500 bear markets are when the S&P 500 index closes down 20% or more below a recent high.

"Historically, bear markets have created strong buying opportunities as the S&P was significantly higher 1-, 3-, and 5- years after the trough."

(The 3 worst post-WWII plunges: it has Jan'73-Oct'74 as 48.2%, 3'00-10'02 as 49%, and 10'07-3'09 as 56.8%
https://winthropwealth.com/wp-content/uploads/2023/01/SP-500-Bear-Markets-CQ.pdf

As scary as these are, the important thing to note is that these pullbacks ARE TEMPORARY. It sometimes may take a few years, but the S&P 500 has ALWAYS recovered and gone on to new all-time highs. The table at the top of the post include the entire periods -- with all the corrections and bear markets that occurred. I did not cherry pick just the good parts.

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Market Correction: What Does It Mean?, Schwab, 3/14/25
https://www.schwab.com/learn/story/market-correction-what-does-it-mean
S&P 500 corrections occur when the S&P 500 index closes down 10% or more below a recent high. Bear markets are when the S&P 500 index closes down 20% or more below a recent high

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Corrections occur about every 2 years, on average. Bear markets occur about every 7 years, on average.

In the face of inflation and withdrawals, a balanced portfolio -- with a large percentage equity allocation (but not 100%) for a retiree -- lasts longer and has much less chance of running out of money in say 30 years than does a "safe" all fixed income portfolio (bonds, CDs, money markets etc.). This has been shown by innumerable simulations.

Re: withdrawals: a common model is assuming a retiree withdraws 4% of their portfolio in the first year of retirement, and increases the dollar amounts of the withdrawals in subsequent years by the rate of inflation. That "4%" is a common base assumption but simulations have been done at many different levels of withdrawal rates.

Corrections occur about every 2 years, on average. Bear markets occur about every 7 years, on average.

So many here just don't get it. Buying and holding for the long term will make you money, especially over the long term.

It's important to have at least some of your investments in stocks. In bonds only, you will steadily lose money. You need capital gains all of your life. Yes, you do.

It is called cost averaging.

If I were 70 and getting ready to retire, I'd avoid adding to stock-based investments.

Crazy ups and downs but mostly tying to claw back a bit here and there and then down more. Timing will be impossible

Since he won’t be able to add to the 401k after retirement you can add more money but park it in a MM (Vanguard is at 4.23%) and then move it when things settle down.

If a worse case scenario would require you to be liquid then no but only you and your financial advisor can determine what’s best for your specific situation.

Good luck!

Having said that and being a risk adverse investor, It might be a better approach to park
the money in relatively short term CD, money market or a bond fund to persevere your capital, I would choose a
CD that allows you to make contributions during the term.

This is not a normal downturn, way more risk and volatility. In a normal downturn you keep investing.
.It maybe best to park your money and wait

Do consult with a financial expert you trust remembering that at his age, he should be rebalancing
his port olio away from growth stocks and into dividend stocks and bonds.

Do not use that amount for another 7 years. Better yet, put it in Roth 401k if they offer

will you need the money for the next 5 years, should you take advantage of being able to contribute to a tax deferred IRA, is your Roth maxed out, can you get a employer match for the contributions?

There is absolutely no way to know what the future will bring but overtime the market will recover - question is how long. I would also make sure that your investments are diverse.

Remember this old saying....
"Bulls get rich, Bears get rich but hogs get slaughtered"

well, such as bond funds, at least nobody has claimed their 401k is an exception.

So yes, he should contribute to take advantage of the employer match at least. Whether it should be in a stock (equity) or fixed income fund is a separate choice.

It drives me binky-bonky, quite frankly, when people slam 401k's as being synonymous with the stock market. And then go on and on about how stocks have periodically crashed. I would sue any employer whose 401k offered me no fixed income alternatives.

My small pension is less than 30% of what it should be, thanks to my former employer going bankrupt twice and turning their pension obligation over to the PBGC (Pension Benefit Guaranty Corporation). I'm fortunate in that I worked for that company in the first ten years of my working life, and never thought that pension would amount to anything. I feel extremely sorry for those who worked for that company for 30 years or so, and suddenly had their pension cut by 2/3.