Trump's tariff policies have rocked the stock market, leaving many people uncertain about the health of their retirement portfolios. Betterment vice president of behavioral finance and investing Dan Egan joins Wealth with Brad Smith to discuss what to do with your 401(k) amid the market downturn.
To watch more expert insights and analysis on the latest market action, check out more Wealth here.
as investors await the April 9th implementation of significant tariffs on many US trade partners. And average investors may be wondering how this will impact their retirement portfolio, especially considering a record number of Americans are set to turn 65 in 2025. For advice on handling your retirement accounts, I want to bring in Dan Egan, who is the betterment VP of Behavioral Finance and Investing. Dan, what should investors be doing right now?
For the most part, it's sticking to a plan that hopefully they have already set up. Uh, if you are, um, continuing to save into your 401k, save on a regular basis. This is, as you said, a great chance to buy the dip dip. Uh, great technical term there, uh, often used within the industry. And I want to take us step back and do some historical context setting. So I have the joy of having lived through multiple financial crisis, starting in 2001, 2002, tech stocks, uh, 2008, the financial crisis, and of course, the COVID pandemic. And in each cases, there was sort of an external reason that the markets went down, either deleveraging or a virus that took the world by storm, that we had to come up with a policy response of it to say, hey, there's something bad going on on there. What are we as a society going to do about it? And we had to come up with that and agree to it. In this case, we know exactly what is going on, and if we want to at any point in time, we can walk this back. This is a little bit less scary because we know what to do. And because of that, I'm a little bit more wary of any kind of especially partisan or political emotional headline whipsawing that might go on there. Um, if Congress came out and said, hey, we're taking back power on tariffs, things could whipsaw right back faster than we've ever seen it before. So as opposed to other historical, um, components here, there's greater possibility for things popping back very, very quickly based on one or two different announcements, as we've already seen today.
Certainly. And so, is there anything you should definitely not be doing right now in this environment then?
Don't over consume the news. It's good to check in every once in a while, think about how what's going on might affect your financial situation. Uh, but don't doom scroll. Don't sit there and keep adding stress to stress to stress because you will get to some point where you break and say, I can't take it anymore. I'm too stressed. I'm going to make an impulsive decision. And one of the things you have to remember is that it's a two-way door, right? You have to decide to get out of the market, and then you have to decide to get back in at some point in later time. And that's to your point about buying the dip. People are always saying, it feels risky. When is it going to not feel risky? It's hard to get back in once you've gotten out.
And so for older investors, and and we kind of acknowledged or alluded to this, older investors that are approaching retirement, is now the time to reallocate?
I wouldn't so much reallocate as one of the greatest powers investors have when they're around their retirement age is deciding exactly when to retire. There have been some great studies done on people who thought about retiring right before the market went down, and they decided to defer it just sometimes six months or one year, and how much better they ended off rather than trying to do it right when the market was going down. So the greatest power that retiring investors have is deciding when to do that. And once they retire, managing the first two or three years in terms of, um, more about their expenditures, how much they kind of like set their lifestyle as, rather than reallocating. That said, I do want to be clear, as you are coming into retirement, it's generally good to have a much lower stock allocation, somewhere around 50% stocks rather than the 70, 80, 90 that you would recommend for somebody who still has 10 plus years out.
Hmm, that's good. And for younger investors, could a bear market be a buying opportunity? How should they be assessing that?
Definitely. Um, every case that you have a long time horizon, say 10 plus years, the market going down is more of an opportunity than it is something to worry about. That is the greatest advantage that we as individual investors have. Professional traders, they have to make money every year because that's effectively their salary. On the other hand, we have the power of patience. We can afford to last out the short-term downturns. So every time there is a buying opportunity like this, if you have some cash sitting on the side, it's not a bad time to use it, but also you should have just set up ongoing auto deposits, deposits into your 401k, such that you don't even have to make the hard decisions at these points in time.
You know, typically when we see downturns, that's when people start to become or let me balance it out. When we see downturns in the equities market, severe ones, and then when we see some type of revolutionary move higher, that's when we see a lot of investors, retail investors typically become a little bit more active with their ability to to buy into a theme or head for the hills. And so in kind of both of those scenarios, how should people be making sure that they are both capitalizing on the opportunity for longer term trades when there are pullbacks like this, and knowing, especially in the uptrends on the other side of that, when they're being sold a stock that doesn't necessarily warrant some type of massive massive investment out the gate.
Well, one thing I would say is, uh, you know, don't try and pick the individual ones. That puts you into a double risk of both like what is the market as a whole going to do, and then how is this specific stock going to do? Um, I love all stocks equally. I buy all of them, and they've all done well by me. Uh, the other component of it, I would say is two things. Number one, try to just take as much as possible partisanship out of it. If you're getting excited because there's a dip because you're like, oh, this is a great buying opportunity, I can't wait, or the opposite, um, markets don't care about your politics at all whatsoever, and stocks won't either. So try to take that aspect of it out to try and get a cooler head. Um, the second is try to do something a little bit less extreme than you might be, um, aiming for. So that might be trim 10% of your stock exposure off. Don't go from 100% stocks to 0% stocks. Do a smaller rotation of the fund. You can always, you always have the option to do, make more adjustments later, but it's often the doing one big thing that you have to walk back, you know, going from 0% to 100% and back again. That's the sort of moves really hard for people, um, to walk back or make fine grain adjustments on. So do less than you're inclined to.
Dan, thanks so much for taking the time here with us today. Appreciate it.
Pleasure.
