“I know that the market has suffered and, along with it, my 401(k).” (Photo subject is a model.) - Getty Images/iStockphoto
Dear Quentin,
It looks like a recession is on the horizon. Surely the time has come to take action.
I’ve noticed you’ve been giving people advice on what to do or, more precisely, what not to do in the weeks and months since the election of President Donald Trump and his announcement of tariffs. I don’t pretend to understand all the details, but I do know that the market has suffered and, along with it, my 401(k). I’m 57, and retirement is within my grasp. The economy appears to be slowing down. What can I do, if anything? I feel like I’m fiddling while Wall Street burns.
That is dramatic language, but I would be less anxious if I was in my 30s or 40s. I’m looking for a roadmap. My friends say, “Sit tight,” except for one who constantly goes on about checking his 401(k) and, sorry to say, that makes me feel even worse. I feel like every morning I wake up, wonder what’s next, turn on the news or open my laptop, and there’s more bad news. Give me five things I can do right now, and I won’t blame you if they don’t pan out.
Don’t underestimate the U.S. economy. - MarketWatch illustration
Dear 50-something,
Wall Street isn’t burning. It’s processing.
It’s processing news — and responding accordingly. You’re correct about the facts, as we know them. Your feelings and predictions can be managed separately. Gross domestic product contracted at a 0.3% annual rate in the first three months of 2025, the government announced Wednesday. This marks the first contraction in the economy since early 2022 and markets are, perhaps understandably, spooked. The S&P 500, Nasdaq COMP and Dow Jones Industrial Average DJIA get spooked on a regular basis.
We’re not in a recession. At least, not yet. “The decline in GDP in the first quarter overstates the economy’s weakness, but it is weak,” Moody’s chief economist Mark Zandi said Wednesday. “The threat of tariffs and DOGE cuts weighed heavily on the economy in the quarter. Most worrisome is the weak growth in consumer spending, and that is despite the boost to buying as consumers rushed to get ahead of the tariffs. The economy isn’t in recession, but is on the precipice.”
Most analysts see a recession as more likely than not. Some 60% of economists polled — 101 out of 167 — said the prospect of a recession this year was either high or very high, while 66 said it was low, according to a Reuters poll. Another poll of 41 professional business forecasters by the National Association for Business Economics said half of the participants place the probability of recession this year at 25% to 49%, while 37% put it at 50% or higher.
Recessions come in all shapes and sizes. Over the last 80 years, there were 24 corrections in the S&P 500, with average market declines of 14%, according to IG Wealth Management. It usually takes around five months for a correction to reach its lowest point. Market crashes — defined as “a sudden and drastic downturn across a major cross-section of a stock market” — are even rarer for the S&P 500, having happened only 13 times since 1950. Larger crashes of 30% or more are extremely rare: There have been six of them since 1950.
1. Stay invested for the long term. That is an action, and “long term” means the next 10 years and the decades of your retirement. Remember that you won’t cash out all your stocks on the day you retire. You will be making withdrawals from your 401(k) and, at some point in the future, claiming Social Security benefits. The clue is in the name: Your retirement funds should remain intact during your retirement. You could live to 80 or 90 or beyond, so you have many years ahead.
2. Save money in an emergency fund so you can handle the unexpected: a job loss, a health event or a new roof. During uncertain times, it’s smart to have enough funds to cover at least six to 12 months’ worth of expenses readily accessible, either in a high-yield savings account or a checking account. This also gives you something invaluable during a recession or stock-market downturn: peace of mind.
3. Buy what you need and don’t panic and start stockpiling canned vegetables, olive oil or soap. But if you need a car for work and your current vehicle is on its last legs, this might be a good time to buy a new one. Americans — at least those who can afford to — are buying more cars, with new-car sales up 9% year over year to 1.59 million units in March as people rushed to upgrade before the new tariffs took effect.
4. Consult your financial adviser about your long-term retirement plan and review your portfolio. People in their late 50s should probably have roughly 60% of their savings in equities, 35% in bonds and 5% in cash. According to the “120 minus age” rule, you can subtract your age from 120 to determine what a sensible weighting in equities would be. (There’s also the ”100 minus age” rule, so opinions differ. It’s a guide.)
5. Keep your faith and don’t underestimate the U.S. economy. We’ve seen challenging times before, including the pandemic, the 2008 subprime-mortgage crash and the 2001 dot-com bubble. Trump inherited, by most measures, a strong economy from former President Joe Biden. Inflation had cooled, with the consumer-price index currently running below 3%. Unemployment was 4.2% in March. The labor-participation rate is over 80%.
Whether you’re concerned about a recession or a stock-market crash, it’s natural to be nervous about the future, especially as you get older. Analysts suggest investing in consumer staples, along with real-estate investment trusts, healthcare and utilities. The financials sector may benefit from looser regulation. You wouldn’t be human if you didn’t care, but try to avoid using inflammatory language. It won’t help you, and it won’t help others when you share those worries.
The past is a good indicator of the future. The last 15 recessions — roughly defined as two consecutive quarters of negative GDP — produced negative returns for 17 months on average, according to Russell Investments, with an annualized cumulative decline of 14.8% and an average drop in gross domestic product of 4.6%. A market correction, as you are probably aware, is a fall of 10% from a recent peak, and a bear market is defined as a 20% fall from a recent high.
But the bull markets that follow market crashes are typically very long, IG Wealth Management says: “During the early months of the COVID-19 pandemic, the S&P 500 SPX fell in value by 34%. The S&P 500 bounced back to its previous highs by November of 2020, taking around 8 months to fully recover, and had a gain of 15.6% by the end of the year.” For that reason, it’s important to remain diversified and to look for opportunities for investment — but to avoid trying to time the market.
Your mental health, after all, is as important as your financial health. When you wake up tomorrow, instead of turning on your laptop or TV, go for a walk. Clear your head. Plan a vacation or some activities, or get together with friends but make a pledge that you won’t talk about your 401(k), the markets or whether a recession will happen. Some things are out of your control, but your long-term goals, along with your retirement, are still within your grasp.
