How To Protect 401k From Market Crash

Do you have that financial advisor telling you to just hold for the long term and live through the cycles?

Yeah me too but the #1 way to diversify from fiat currency in your 401k is a gold IRA.

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Table Of Contents

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.

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 Tolerance2. Different Asset Classes3. Economic Downturn4. 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.

Conclusion

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.

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