Pension Expert: 401(k) Investors Likely Crushed in Next Market Crash
Posted By | February 23, 2018
As the number and breadth of equity options inside 401(k) plans have vastly improved over time, the potential portfolio risk to American workers has markedly increased. While many Americans have taken advantage of the greater flexibility offered by IRA accounts to help fund their retirement goals, the company-sponsored retirement plan remains the “go-to” savings vehicle for millions of U.S. workers. However, one pension expert has come forward to suggest the next market crash could devastate the stock-based 401(k) plans of many investors to such a degree that they might never fully recover.
In a piece for Seeking Alpha, pension consultant Ronald Surz writes that, if the next market crash is similar in severity to the one that occurred in 2008, 401(k) investors sitting entirely in equities can expect to lose roughly 56 percent of the value of their accounts. Surz says if those investors find themselves facing what is essentially a repeat of the market crash in 2001, they may experience a loss of as much as 80 percent.
According to a 2017 CNBC article, it’s not just younger workers who are betting heavily on stocks with their 401(k)s. Plan participants aged 45 to 49 have allocated, on average, 75 percent of their accounts to stocks, and even those in the 65-to-69 age bracket have an average of half their accounts in stocks. Given that those are averages, it’s not unreasonable to infer a substantial number of older workers are “all in” on equities. It is those folks who have the most to lose if the markets suffer a massive and prolonged downturn.
One group at particular risk is comprised of investors who own sizable “orphaned” 401(k) plans with previous employers. Very often, plan participants work for many years at one company, faithfully contributing to their accounts each pay period and allocating their resources heavily in equities, only to leave that company for another opportunity. Many of these folks have taken a potentially dangerous “set it and forget it” approach to the plans they have left behind. There is risk in ignoring the plans and they could take a huge hit in the event of the next market crash, even if the balances of those accounts are significant.
Silver or Gold IRA Offers Potential Equity-Balancing Effect
If you did leave behind a company-sponsored plan, you have the option to roll over some or even all of your balance into a silver or gold IRA. Because precious metals are an asset virtually uncorrelated to equities, which means they enjoy the potential to thrive during sour market conditions, an allocation in physical gold or silver can go a long way to helping protect your money during a significant market downturn.
Even if you aren’t presently eligible to roll over your 401(k) plan, you still can open a gold IRA funded within annual contribution limits. Opening a precious metals IRA in addition to your current 401(k) is, in my opinion, another excellent way to go about securing your overall retirement savings.
If you have questions, give our team at Augusta Precious Metals a call at 855-242-4121. Our gold and silver specialists are well-versed in not only the particulars of precious metals investing in general, but also how to invest in precious metals by way of a tax-deferred retirement plan, including using 401(k) account proceeds.
According to the CNBC article, 401(k) investors are now more heavily allocated to equities than workers of previous generations. No matter what kind of account you own, if you have a substantial amount in equities, it is ill-advised to leave yourself without any protection in the form of an alternative asset uncorrelated to stocks. In the next market crash, a silver or gold IRA could offer just that kind of protection, because precious metals have thrived well historically in a climate of volatile markets and a weakening dollar.
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