How to Quell Clients' 401(k) Balance Panic in Bear Markets: Advisors’ Advice

When you start working with clients, get clear on their goals, as you complete the risk profile analysis, explain what could happen in a short time. Explain that markets go up and down, and when they go down, that’s when they are likely to be most worried and that is the time to not do anything. Then help them get invested in the correct portfolio (for them).

When the bear market hits, reach out to clients on a regular basis and remind them about their investment goals, the time horizon they are looking at, and the previous conversations you’d had about how the market behaves. Also, explain that markets going down is the opportunity to buy equities at a low price.

This may or may not stop them from looking at their accounts, but if they do, it will hopefully stop them from panicking and trying to sell at a loss.

— Jane Mepham, founder and principal advisor, Elgon Financial Advisors in Austin, Texas

People are going to check, but I encourage them to only do it one time and then call me. When they do, we re-run their retirement plan numbers and show them how they are still on track to meet their retirement goals, even with this down market. If they are on track to meet their goal, that usually calms them down. But if they have not been prudent and systematic in the past with saving, then there is not a lot I can do for them now to calm them down. My advice is to make sure your retirement investment plan takes into account possible future downturns in the market as well. Once a down market happens, there is not a lot you can do about it, no matter how many times you look.

— Wheeler Pulliam, PhD, CFP,MBA, MHR, founder, managing partner and financial consultant, Xponify Financial in Hickory Creek, Texas

A way that we've been successfully able to help clients not check their 401(k) balances is through proactive communication. In between regularly scheduled client meetings, we have been calling clients to discuss any concerns, as well as sending out more frequent emails and social media posts. We also emphasize that now may be a good time to continue contributing (or potentially increase contributions) to retirement plans while stock prices are lower. Finally, revisiting long-term financial plans that we've created and updated gives many peace of mind during uncertain times.

— Nicole Sullivan, co-founder and director of financial planning at Prism Planning Partners in Libertyville, Illinois

Do you want your financial success to be driven by your strategy or by your emotions? If by emotions, then by all means continue checking your balance. If by strategy, then leave it alone and give the strategy its requisite time to "bake in the oven," as it were.

The coach who frantically checks the score halfway through the first quarter is unsuited for the role. Even for those in retirement, most have decades ahead of them — plenty of time for the market to recover and grow.

— Joshua D. Hargrove, CFP, Insight Wealth Partners in Plano, Texas

I work with many small business owners and we are always trying to duplicate the great auto-buy feature of 401(k)s. Every two weeks you are buying more shares! So don't fret the market downturn. Be happy that you have a system in place to buy into the market periodically. And if you ARE fretting the downturn, it is time to work with a financial planner (like me!) who can help you understand if you're on track for your long-term goals or not — and/or if you need to make adjustments to your investments or overall planning.

— Catherine Valega, CFP, Green Bee Advisory/Bay Financial Associates in Waltham, Massachusetts

The best way to ease client concerns is to conduct a review meeting with them to go over all of their current positions and retirement forecasts. Tools such as Retire Up, eMoney, MoneyGuidePro, etc. allow you to forecast a client's retirement with a variety of inputs and assumptions. If we update account values after the recent decline and the client is still showing a successful retirement then the client concerns are almost instantly erased.

Just telling your clients that things will bounce back without providing any specific analysis will not ease their concerns. Clients love to know they are still on track to meet their goals despite the recent poor performance.

— Zachary Bachner, investment advisor representative at Summit Financial Consulting in Sterling Heights, Michigan I think the best way is to remind them that while they are still saving each and every paycheck, they are buying on sale in a down market. People get too attached to their total balance that they noticed at the top and don’t think about the contributions that are buying at lower prices. Those make a difference!

I would also remind clients the markets tend to overcome and tend to go up over the long run. The noise we are experiencing now is part of the game, but the long-term perspective has played out over the history of the markets well. One of two things is going to happen: The market is going to keep doing what it has always done (go up and down, but more up than down) or it will go to zero. If it goes to zero, you won’t care what your portfolio balance is because it’s the end of our current society as we know it and you’ll be more concerned about finding food and self-preservation.

— Jarrod Sandra, CFP, CPFA, owner, Chisholm Wealth Management in Crowley, Texas The best way to ease client concerns is to conduct a review meeting with them to go over all of their current positions and retirement forecasts. Tools such as Retire Up, eMoney, MoneyGuidePro, etc. allow you to forecast a client's retirement with a variety of inputs and assumptions. If we update account values after the recent decline and the client is still showing a successful retirement then the client concerns are almost instantly erased.

Just telling your clients that things will bounce back without providing any specific analysis will not ease their concerns. Clients love to know they are still on track to meet their goals despite the recent poor performance.

— Zachary Bachner, investment advisor representative at Summit Financial Consulting in Sterling Heights, Michigan

I just had this conversation with a client 30 minutes ago. Timing the market, especially when it has already lost in many cases 20%, is a fool’s errand. Keeping tabs on your plan is more important.

No one knows for sure where we are in this cycle but it will continue to be volatile. If you feel that it is too much, look at your allocation and possibly rebalance, but if you look every day, many will find themselves "Selling on Fear" at the wrong time.

Since investing is a marathon (investing to your financial plan) and not a sprint (day trading), I let the client know these facts and the things I am looking at, such as: Stocks tend not to rebound in Fed cycles until they start easing [and] typical sell-off with Fed tightening is 15%.

It is a good time to think of these historical trends, have a plan and don't "react.”

— Scott Bishop, CFP, executive director of wealth solutions, Avidian Wealth in Houston, Texas

This has come up in conversation many times recently.

Here are some of the top points I share with them:

1. Cite statistics. The average bear market lasts nearly 300 days, with losses well in excess of what we've seen thus far. Focus on the fact that this is a normal part of the economic cycle and bear markets tend to last a lot longer.

2. It's important to review all financial account statements, and the frequency in which they come out can also be seen as a reasonable frequency to review accounts.

3. Many funds pay distributions, which results in receiving more cash, or more shares of the fund. This is reflected in account balances, but gain/loss based upon fund share price does not reflect this as a return.

— Jeremy Bohne, financial advisor and founder, Paceline Wealth Management in Boston, Massachusetts

Most 401(k) investors very rarely trade, even during times of market turbulence. For instance, Morningstar found that fewer than 6% of 401(k) participants made any changes during the market crash in March 2020.

Since 401(k) plans are designed to have automatic investing, the good part is that most investors will keep buying throughout the bear market. This will help their long-term performance.

For the few 401(k) investors who want to make a change, it’s important to remind them that they are long-term investors. They can expect to live through many bear markets and recessions throughout their career. Each one will feel uniquely terrible, but staying the course is the best strategy since the market has come back 100% of the time.

— Shane Sideris, CFA, managing partner, Synchronous Wealth Advisors in Santa Barbara, California

It might be a pretty basic technique, but my best strategy to take attention off the stock market and investment portfolios is to focus on any financial planning related topics that are in our control. We know that it isn't healthy to continually check 401(k) balances during a bear market, so it is best to vector that energy into something else that a client may be able to control such as tightening up an area of their budget, getting estate documents updated, or updating an insurance policy. This helps to deflect attention from the 401(k) and also get clients to appreciate that there is so much more to their financial life other than their 401(k) or investment portfolio.

— Erik M. Baskin, founder and financial planner, Baskin Financial Planning in Dayton, Ohio

I think the best way is to remind them that while they are still saving each and every paycheck, they are buying on sale in a down market. People get too attached to their total balance that they noticed at the top and don’t think about the contributions that are buying at lower prices. Those make a difference!

I would also remind clients the markets tend to overcome and tend to go up over the long run. The noise we are experiencing now is part of the game, but the long-term perspective has played out over the history of the markets well. One of two things is going to happen: The market is going to keep doing what it has always done (go up and down, but more up than down) or it will go to zero. If it goes to zero, you won’t care what your portfolio balance is because it’s the end of our current society as we know it and you’ll be more concerned about finding food and self-preservation.

— Jarrod Sandra, CFP, CPFA, owner, Chisholm Wealth Management in Crowley, Texas

I'm not sure if it is possible to get clients to stop checking their 401(k) balances, but it is possible to help them improve their reactions. If their balances are keeping them up at night, then there is both an opportunity for education and support. The key is to help them understand what is normal and what is not. There is an opportunity to help them understand that their financial plan has accounted for both the ups and downs of the market.

— Jay Zigmont, PhD, CFP, founder, Live, Learn, Plan in Water Valley, Mississippi

Let’s start by asking how often are they checking and why?

Depending on their investment objectives and their time horizon, this frequency could either be deemed “too much” or “too little.” There is a balance between being concerned and being inefficient with your time (and energy). I would expect someone nearing retirement to check on these accounts more frequently, but a young investor will have several business cycles to weather and frequent checks of their retirement accounts will only distract them from their current objectives.

Clients who have 401(k)’s aren’t using them for day trading. They are using them to prepare for retirement. It sounds clichéd but, as advisors, we have the opportunity to increase our clients’ financial literacy, coaching them away from emotional decisions lead by fear or greed, and toward a focus on their personal, long-term objectives, using past and present data to make informed decisions.

— Michael Raimondi, wealth manager, Clarus Group, New York City and Freehold, New Jersey offices

Because there are a lot of factors involved with planning for retirement, operating within a well-defined financial plan may relieve some of the stress a bear market can cause. We can project different scenarios and make changes to assumptions within the plan, based on market returns and lifestyle expectations. I find this helps clients be more prepared mentally, emotionally, and financially for market downturns. Down markets are inevitable, so we account for them even in periods of higher returns.

Younger clients may be tempted to look because they have seen stocks and cryptos rise high and fall far over the past two years. Since they have a longer time to invest, I would encourage them to maintain — or possibly even increase — contributions to retirement accounts during this time so they are able to buy more shares at a discounted price.

— Dale L. Shafer II, CFP, CDFA, founder, financial advisor and chief compliance officer, Life Moves Wealth Management in Scottsdale, Arizona

We help clients refrain from continuously checking their retirement accounts during extreme volatility by explaining that if your financial goals haven’t changed, then your investment strategy shouldn’t change either. You need risk to get returns and it’s important to stick to your savings plan and not worry about the balance today because your money invested in stocks will not be needed in the short-term. We also encourage clients to reframe their mindset and think about the market being on sale during bear markets. We encourage clients to stick to their savings plan and purchase more if they have any excess cash.

We are also able to visually show clients if their current investment returns are impacting their goals. If they’re not impacting their goals, then the clients no longer have to worry. If the volatility is impacting their goals, then we may need to adjust their savings plan or put a new action plan in place.

— Alexis Woodward, CFP, co-founder and wealth advisor, Blend Wealth in Noblesville, Indiana

I find sharing stories of others helps clients change behaviors. I often share a story of a prospect I met that told me he had visited the ER after viewing his investment balances on the heels of a major stock market decline. He thought he was going to have a heart attack. He was okay, thankfully, and his values returned to where they were not too long after that. But it certainly wakens clients up to the very real feeling the down market can have.

So, I typically follow that up with a reminder of their objectives when they need the money and the plan we've outlined. Letting them know the day-to-day, month-to-month fluctuations will happen and looking at it too often will only bring heartache in a bear market.

— Kyle Newell, CFP, financial planner and owner, Newell Wealth Management in Winter Garden, Florida