Managing your 401(k) plan account through a market downturn

The stock market and your 401(k) 

Most people rely on savings accounts and investment portfolios that include stocks and bonds held in taxable accounts or qualified workplace retirement savings plans, such as a 401(k), to meet retirement income needs. Your 401(k) plan can be an effective way to save for the future. Many plans include features that encourage investment discipline and long-term goals, such as tax-deferred savings and penalties for the early withdrawal of money. This long-term focus is important because the stock market goes up and down daily but generally goes up over time.

Many investors are nervous during stock market downturns, especially in bear markets where stocks can lose 20% or more of their value. Conversely, investors tend to get excited about bull markets when stock prices can go up at least 20%.

The history of market cycles shows that while stocks move up and down over short periods of time, they've recovered losses from every bear market. In fact, the longer the investment holding period, the greater the chance of a positive outcome. For example, investors have earned positive returns from owning stocks in the S&P 500 Index over every 15-year period since 1950.

This hypothetical example is for illustrative purposes only.

Source: Morningstar, Inc., S&P 500 Index, 2025. Annualized returns for respective periods are based on rolling monthly returns of the S&P 500 Index between 1951 and 2025. The S&P 500 Index has been used as a representation of the markets. It is not possible to invest directly in an index. Past performance does not guarantee future results.

Put the power of dollar cost averaging to work

You may be tempted to sell during periods of market turbulence, but understanding how the market works can help you feel less nervous—and keep contributing to your 401(k) plan with automatic payroll deductions. When saving for a long-term goal such as retirement, regularly investing a set amount—a practice called dollar cost averaging—means you buy more shares during downturns when prices are lower.

You may even consider increasing your contributions during downturns to take advantage of more attractive prices. Over time, dollar cost averaging lowers the average price you pay for your investments. This can potentially position you to benefit from the long-term power of compounding—earnings on contributions and reinvestments—and help prepare you for a more positive outcome.

Dollar cost averaging does not guarantee a profit or eliminate the risk of a loss. Systematic investing involves continuous investment in securities regardless of price level fluctuation. Participants should consider their resources to continue the strategy over the long term.

Take emotion out of 401(k) investing to boost retirement readiness

An automated investment plan can help prevent you from leaving the market at the wrong times. The history of markets shows that most gains over time occur in short periods that are difficult to predict. By missing the 20 best market days during the last 25 years, for example, you could have given up more than two-thirds of the gains enjoyed by those who remained invested.

Let’s take a look at two investors and how a $100 investment grew over a 25-year period.

The S&P 500 Index has been used as a representation of the markets.

Hypothetical example for illustrative purposes only. Source: Morningstar Direct, S&P 500 Total Return Index. Assumptions: one-time investment of $100 on January 1, 1999, in the S&P 500 Index. For market timing examples, the 20 highest single-day returns were removed from the total return. Indexes are unmanaged and cannot be invested in directly. However, you should always keep in mind that you cannot count on the market to behave the same way in the future as it has in the past. These comparisons, while a helpful way to evaluate your investment options, should not be considered predictors of future performance.

It can take years and added risk to recover from such shortfalls. Over time, buying low and staying the course through automatic payroll deductions can help improve your retirement readiness.

Contributing to your 401(k) plan gives you the chance to spread your money across a variety of investment options. You can choose from different asset classes, investment styles, and market capitalizations, which can help you make it through a market downturn. By diversifying your investments, you can aim for steadier returns and help protect your portfolio if some investments don't perform well.¹

Finding a comfort zone with 401(k) investments

If your employer offers a wide range of investment options, it helps you create a diversified portfolio that matches your comfort with risk, making it easier to stay calm during market fluctuations. You can customize your portfolio or choose professional management if you’d like extra help. Check with your plan provider about educational resources to help you manage your account during tough market times.

Visit our market volatility resource page for helpful articles about the financial markets and the economy.

1 Neither asset allocation nor diversification guarantees a profit or protects against a loss. An asset allocation investment option may not be appropriate for all participants, particularly those interested in directing their own investments.