Understand risk
When stock market prices fall more than 10% it can have a devastating effect on your 401(k) portfolio. And while your personal risk is determined by your specific investment choices, the average person stands to lose 14% of their overall savings during such a fluctuation.
While this kind of loss is sizeable it is not impossible to recoup the loss over time. However, for those closer to retirement age, it’s essential to invest in low-risk stocks and mutual funds in order to avoid significant losses. It’s also important to note that when the stock market crashes, often the long-term bond market maintains or experiences growth.
While bonds are likely to become a more risky investment than in recent years, having a portfolio that incorporates bonds can stabilize your investment portfolio.
Finally, in addition to focusing on investments with minimal risk investors should also have other forms of savings, such as a traditional savings account or reverse mortgage to offset potential losses.
