Do I Adjust My 401(k) When Markets Are Down?

For most small business owners and their employees, the answer is no: do not adjust your 401(k) when markets drop. Reacting to market swings usually costs you money in the long run. Market ups and downs are a normal part of the journey, and most people won’t tap their 401(k) balances for a decade or more. Staying put is almost always the right call.

Key Takeaways

• Moving to cash during a market drop locks in your losses and risks missing the rebound. Investors who moved to cash in early April 2025 missed a 9.5% single-day recovery just one week later.

• A recession ready 401(k) starts with staying invested. In our 20-year example, an investor who stayed invested ended up with over double the savings of one who moved in and out of the market.

• Cutting contributions to protect your retirement savings from a crash can backfire. You miss buying discounted shares, which slows your long-term growth more than the dip itself.

• A good 401(k) plan with a diversified investment lineup is built to handle market swings. You do not need to make changes when things get rocky.

Should I Move My 401(k) to Safer Investments When the Market Drops?

For most people, no. Moving your 401(k) investments to bonds or cash during a market drop locks in your losses. You also risk missing the rebound. Research shows that missing just the 10 best trading days in a decade can cut your long-term returns by more than half.

The spring 2025 market drop is a clear example. When new tariffs were announced on April 2, 2025, the S&P 500 fell about 10% in two days. Investors who moved to cash that week missed a 9.5% single-day rebound on April 9, when the government announced a 90-day pause on the tariffs.

What Does the Data Say About 401(k) Investors During Market Volatility?

First, know this: even though your 401(k) balance has dropped, you have not actually lost any money. You only recognize a gain or a loss when you take a distribution. Since 1926, the U.S. economy has gone through approximately 16 recessions.* Every single one has been followed by a recovery. And in every 20-year rolling period on record going back to 1926, the U.S. stock market has delivered positive returns.** That is not a guarantee about the future, but it is a powerful data point for long-term investors.

The numbers tell a reassuring story. Most 401(k) investors stay the course during market downturns. And they make the right call.

To make this point clear, consider this hypothetical example. Let’s say two 401(k) investors, Anne and Alex, each had balances of $25,000 in their own accounts at the end of 1998. Each contributed $3,600 per year for 20 years, and each initially invested in a S&P 500 fund. Anne stays with her S&P 500 investment and earns 5.62% each year over the next 20 years. Alex gets nervous during market down swings and moves his money in and out of the S&P 500 and ended up with an average return of -0.33%. The difference in their nest egg values is remarkable.

Staying Invested vs. Not

Anne has more than double the nest egg value of Alex with $205,338 vs. Alex’s account value of $93,072.

What Should Small Business Owners Do When Their 401(k) Is Down?

Small business owners face pressure from two sides during a market drop. They worry about their retirement savings and getting questions of concern from their employees. Here are three things you can do right now.

1. Keep contributing, and consider putting in more

Think of a market downturn like a sale. When the market is down 10 to 15%, each dollar you put in buys more shares at lower prices. This is called dollar cost averaging. It is one of the best long-term savings strategies available. Cutting your contributions during a downturn is like walking away from a discount.

2. Check your investment mix, but do not abandon it

There is a difference between a smart adjustment and a panic move. If a market drop has pushed your stock percentage far off your target, then rebalancing may make sense. But moving everything to cash or bonds just because markets feel bad is not a good idea. Stick to your plan.

3. Reassure your employees

Your employees may not have seen many market cycles. Remind them that their 401(k) is a long-term account and that staying put is usually the right move. If your plan comes with a dedicated advisor or support team, this is a great time to use that resource.

Ready to give your employees better retirement support? Connect with a ShareBuilder 401k expert today.

Should I Stop Contributing to My 401(k) When the Market Is Down?

No. Stopping contributions is one of the most common and costly 401(k) mistakes during a downturn. When markets are down, you are buying shares at lower prices. If markets recover, those shares are worth more. If you stop contributing, you miss the buying low opportunity. More shares at lower prices, compounded over time, add to a substantial difference.

The Upside of Dollar Cost Averaging

Your account is up 8.35% because you stayed the course, even though the market hasn't bounced back yet.

How Should You Think About Your Strategy for Stocks, Bonds, and Cash?

We aren’t all comfortable with the same level of market swings and typically, the closer you are to using the money, the less you want to experience big swings. Historically, large-cap stock funds have returned approximately 10% per year since 1926, intermediate-term government bonds approximately 5%, and cash approximately 3%. † Stocks deliver higher returns over time but are significantly more volatile. Bonds and cash provide more stability but give up return.

A useful starting point: roughly match your bond percentage to your age. At 30, consider 30% bonds and 70% stocks. At 55, consider around 55% bonds and 45% stocks. This can work well when you are under 50, but once you reach that age you may want to hold somewhat less in bonds than your age suggests, as most people need their portfolio to keep growing well into retirement. If you are 60 or older, keep in mind that most people expect to live 20 to 30 more years past retirement. Some stock exposure is still appropriate and important. Most importantly, pick an allocation that helps you rest better at night. When you know your mix is something you can genuinely live with through a full market cycle, the down swings are a lot easier to stay the course through.

Should You Move Your 401(k) to Bonds or Money Market Right Now?

There are real reasons to make changes to your 401(k). A falling market is not one of them. Here is when it makes sense to make a move.

Your investment mix has drifted way off track.

If a market drop has pushed your stock percentage far above or below your target, rebalancing back to your original plan makes sense. That is smart investing, not panic.

Retirement is only a few years away.

If you are within three to five years of retiring and have not started shifting to more conservative investments, a downturn is a good reminder. Do it as part of a plan, not out of fear. A risk tolerance questionnaire can ensure you are staying on track with your goals and time horizons.

Your plan no longer fits your business.

Market volatility sometimes brings up bigger questions. Is a safe harbor 401(k) right for your company? Would a Solo 401(k) or a different plan let you save more? These are great questions to explore with your plan advisor, no matter what the market is doing.

Not sure if your plan is built to help employees stay the course? Learn why our plans are 62% less than our competitors'.

FAQs

What happens to my 401(k) if the market crashes?

Your 401(k) balance will drop when the market drops. But your money is not gone. You only recognize gain or loss when you take a distribution.

Should I move my 401(k) to bonds when the market is down?

For most people, no. Switching to bonds during a drop locks in your losses. You also miss out when the market bounces back. The exception is if you are only a few years from retirement.

How does market volatility affect small business 401(k) plans?

Small business 401(k) plans go up and down with the market like any other retirement account. Good plan design helps. Auto-enrollment and model portfolios help keep people invested even when they are nervous.

Should I stop contributing to my 401(k) during a recession?

No. Keep contributing. When markets are down, your money buys more shares. When markets go back up, those shares are worth more.

How do I talk to my employees about their 401(k) during market volatility?

Remind them that market drops are normal. Making investment changes during a drop usually may hurt them in the long run. Share 401(k) plan resources and remind them where to get support.

What is dollar-cost averaging, and how does it help during a market downturn?

Dollar-cost averaging means putting a set amount into your 401(k) every pay period, no matter what the market is doing. When prices are low, your money buys more shares. When prices are high, your money buys less shares.

While history offers no guarantees, it offers a compelling track record. We hope you find this to be a helpful perspective.

ShareBuilder 401k does not offer tax or legal advice. Consult with your tax or legal advisor before engaging in specific strategies.

Sources

*U.S. Business Cycle Expansions and Contractions, National Bureau of Economic Research (NBER). Available at nber.org/cycles.

** Crestmont Research, “20-Year Rolling Stock Market Returns” (1919–2022). Available at crestmontresearch.com.

† Long-term asset class historical averages (approximately 10% large-cap stocks, 5% intermediate government bonds, 3% Treasury bills since 1926): Morningstar/Ibbotson SBBI data as cited in Hartford Funds (2026), covering January 1926–December 2024. Returns are historical compound annual averages; past performance does not guarantee future results.