How To Protect 401K From Market Crash

Andrew C. McGuire

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I’ve lived through a few of these cycles from 2000, 2008 and the adventure we’re living through in 2022 now. Of course you’re going to have cycles in markets but when you see the CPI (Consumer Price Index) at an all time high since the 1982 days and everyone is worrying about their retirement savings due to inflation hitting all time highs – I worry about my 401K sitting in that target date fund for 2040.

I may not be in retirement in the next 5 years but I’m very worried about my retirement portfolio and how to deal with the market downturn we’re in. I’m writing this in late 2022 but with the down market and hearing how US households have lost up to $10 Trillion in wealth – it is a scary time and also a time to think through potential alternative investment options during bear markets.

So back to the question of how to protect your 401K from a market crash …

The first thing I’d do is take a look at a gold IRA where you can hedge against whatever happens with world currencies.

With the out of control inflation, we even have the US government talking about backing the US dollar by gold again – it seems unlikely but the fact that we have a US Congressman Alex Mooney (R-WV) introducing the Gold Standard Bill is a sign that it’s time to take a look at gold as a piece of everyone’s investment portfolio. The best way to do that is a gold IRA for simplicity.

Related to the dollar surge against weakening currencies around the world, we are seeing the US dollar having greater value against other currencies and then we see how our government is starting to talk about a digital currency.

IMF Dollar chart

As you think about all this in context of how to protect your 401K from a market crash, there are a few variables that come to mind when I think about how to protect wealth here.

The main categories I think about are:
1. Risk Tolerance
2. Different Asset Classes
3. Economic Downturn
4. Retirement Age

Risk Tolerance

To protect your wealth in the eyes of how risk tolerant you are is important. The older you get the lower your risk tolerance becomes (typically). If you’re thinking about investing in Bitcoin or some crazy high risk investment strategy, you will most likely end up losing money and put yourself in a bad spot once you hit retirement age. That might be an ok thing to do as younger investors but with the market fluctuations and potential to lose money – I would really consider holding off on doing something like that.

If you are nearing retirement and have some of your cash in bond funds, mutual funds and have financial advisors helping you with your long term strategy – I would put a majority of your income into that diversified portfolio. There is always a portion that you can take as your ‘gambling fund’ I like to call it.

If you want to have a solid investment plan and have a secure retirement, I would think through your safer investments with your financial team and also think about what percentage you can take and apply to other asset classes that may be more risky.

Different Asset Classes

There are a variety of asset classes you can consider from real estate, cryptocurrency, precious metals, mutual funds, stock prices, fractional art ownership and I’m sure there are other asset classes like space exploration you could get into. It’s really important that with the market uncertainty that we’re living through and the macroeconomic variables that you build cash reserves for that rainy day that comes along. You want to have dry powder to jump on an opportunity that may have more risk but higher upside too.

I know I’m talking out of both sides of my mouth here and I’m not a financial planner. Whether we’re in a bull market or a bear market, it will be important that if there is a stock market crash that you have some cash reserves in your retirement fund.

I was chatting with someone who talked about how one of their investment strategies is to play the market volatility and play the swings. Others may be on a fixed income and can’t risk that which is back to my point about having some dry powder if and when the stock market crash happens. The market rebounds in waves just like everything else in life but depending on your retirement date and where you’re at with the financial planning process you’re in – I’d recommend just holding strong and taking that percentage you want to take bigger risks on.

Economic Downturn

There is no way to control the macroeconomic climate. We can’t control what Russia is going to do with their oil exports and how that impacts the global energy market. We also can’t control what Putin may or may not do with the war in Ukraine. There is risk there and back home in the United States, I can’t control what Biden is or is not going to do related to inflation.

We see the Inflation Reduction Act as something that was suppose to stop inflation but when the CPI continues to climb and nothing seems like free money or for those in retirement planning, we’re seeing the dollar’s buying power for goods quickly decline.

There are no discount prices anymore for goods and the US stock market is not doing well in late 2022 as I’m writing this. Some would say there was a stock market crash and we’re heading into a recession that is going to last for years.

I don’t have a crystal ball and I can’t tell you if the index funds are the asset class you need to hold. I can tell you that market crashes happen and it’s impossible to predict a black swan event with the market downturns.

Retirement Age

We all age and I’m starting to lose my hair so it must be time for retirement, right? As I get older and think about my asset allocation and the target date funds that I’ve set for 2040, I am rethinking what to do here because of what’s going on in our global economy. It is important to have a retirement fund that has a mutual fund that has the right asset allocation and will make sure to protect you no matter when there is a stock market crash but I always look at what to do just in case.

Everybody would like to have a comfortable retirement and many investors would love to have the ability to predict everything but if there is one asset class to consider at your old age it’s cash. We need that to jump into other asset classes in case something happens that we can’t handle. Even cash isn’t the best thing because of the inflation issues and buying power just holding the dollar has. I always come back to thinking through the market lows and potentially looking at the investing options for gold. The best strategy is always to have that diversified portfolio that has other asset classes that will have a low risk factor and for me that’s gold, currency and physical goods like art. It’s impossible to time the market but I also don’t like just holding through the winter storm. I want to figure out how to minimize losses and for me that’s the diversified investments that also will make sure I hit retirement goals no matter what.


You’ll find some Q&A below but as you think about how to protect yourself just remember that diversification is one of the most important things. Always start with getting a gold IRA after your traditional 401k needs. Focus on what you can control and make sure that you have the right asset allocation as you are nearing retirement age. Your risk tolerance may go up or down over time and you’ll need to chat with your financial advisor to really think about if and how to change the percentage allocations over time.


What is a 401K?

A 401K is a tax-deferred retirement plan sponsored by an employer. It lets you set aside money from your paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account. Employers may offer to match all or a portion of employee contributions.

There are two types of 401K plans: traditional and Roth. With a traditional 401K, you don’t pay taxes on the money you contribute or on the investment earnings until you withdraw the money during retirement. With a Roth 401K, you pay taxes on the money you contribute up front, but not on the investment earnings.

How does a 401K work?

When you contribute to a 401K, your contributions are taken out of your paychecks before taxes are calculated. This lowers your taxable income for the year. For example, if you make $50,000 per year and contribute $5,000 to your 401K, your taxable income for the year would be $45,000.

The money in your 401K account is invested, and it grows over time. The investments in your account may include stocks, bonds, mutual funds, and index funds.

You don’t pay taxes on the money you contribute to your 401K or on the investment earnings until you withdraw the money during retirement. When you retire and start withdrawing money from your 401K, the money is taxed as ordinary income.

Roth 401K

With a Roth 401K, you pay taxes on the money you contribute up front, but not on the investment earnings. When you retire and start withdrawing money from your Roth 401K, the money is not taxed.

To be eligible to contribute to a Roth 401K, you must have a modified adjusted gross income (MAGI) below a certain amount. For 2019, the MAGI limit for Roth contributions is $137,000 for single taxpayers and $203,000 for married taxpayers filing jointly.

How do I protect my 401(k) when the stock market crash comes?

The best way to protect your 401(k) is to have a diversified portfolio that includes a mix of stocks, bonds, and other assets. This will help reduce your risk if the stock market does crash. Target date funds automatically rebalance your investments as you get closer to retirement.

Another option is to invest in a 401(k) that offers a guaranteed income stream. This type of 401(k) provides you with a fixed income for life, even if the stock market crash happens.

Finally, you may also want to consider taking some money out of your 401(k) and investing it in a more stable asset, such as gold. This will help protect your retirement savings if the stock market crash becomes realized and the value of your 401(k) decreases.

What are target date funds?

They are a mutual fund that automatically rebalances your investments as you get closer to retirement. The fund managers adjust the mix of these and makes sure that your asset allocation is set based on what is going on in the world.

How does the stock market affect your 401k?

The stock market can have a big impact on your 401k. If the stock market crashes, the value of your 401k could go down. This could mean that you have less money to retire on. To help protect your retirement savings, it’s important to diversify your investments and to consider investing in asset allocations that make sense for your retirement age.

Should I continue to contribute to my 401k?

Yes, you should continue to contribute to your 401k even if the stock market crash is real. This is because the stock market will eventually recover and the value of your 401k will go back up. By continuing to contribute, you’ll make sure that you’re saving enough for retirement.

How does inflation effect my 401k?

Inflation can have a big impact on your 401k. As inflation goes up, the value of your money goes down. This means that the same amount of money will buy less in the future. To help offset the effects of inflation, you should consider investing in assets that tend to go up in value, such as stocks and real estate.

Plan your asset allocation

The best way to protect your 401k is to have a diversified portfolio that includes a mix of stocks, bonds, and other assets. This will help reduce your risk if the stock market crashes. You may also want to consider investing in a target date fund.

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