How Does Market Plunge Impact My 401(K)?

After a historic drop of nearly 800 points Monday on Wall Street, many Americans with401(k)s and other investments may have felt unsure how they should feel about their investments.

So, is it time for action?

“If someone is investing in a 401(k), that’s long term, that’s for retirement,” said Jim

Donnelly, a St. Paul, Minn.-based financial adviser affiliated with Focus Financial. “Making long-term decisions for your future financial security shouldn’t be based on the news of the day-no matter how good or how bad.”

Donnelly said he realized that Monday’s news could shake the confidence of many people who have invested in 401(k)s, but he said now is not the time to panic, especially if you have a long window of time between now and your retirement.

He said that if you don’t have much time left until you retire, it may be worthwhile talking to a financial adviser.

While most of Monday’s news focused on the Dow Jones Industrial Average, Donnelly said people with a 401(k) will actually want to look closer at the Standard and Poor’s Index. The S & P 500 is a broader measure of the market and dropped almost 25 percent more Monday than the Dow.

Donnelly said he did have a few nervous investors call him Monday, but urged them to look at the big picture here and cautioned that history is on the side of the investor.

“I don’t have a crystal ball as to what’s going to happen tomorrow, next week or next month, but based on history, the markets will recover and will go onto new highs, as has typically been the case with bear markets,” he explained, noting the market hit similar lows in 1987 and between 2001 and 2002 and eventually recovered strong.

“A good rule of thumb with 401(k)s is to be very-well diversified (with your allocations). This is not a time when you want all of your investment eggs in one basket.”