How To Protect and Grow Your 401(k) and IRA Before And After a Stock Market Crash

Shawn Plummer

CEO, The Annuity Expert

Is the market about to crash? This guide teaches how to prepare, protect, and grow a 401k, IRA, and investments before, during, and after a stock market crash. In addition, the guide will go over the difference between a bear market and a bull market, a brief stock market crash history over the past 20 years, and a solution to combat the losses to retirement plans and avoid long recovery times.

Americans like to talk about whether the stock market is rising, the market is falling, or how much money their 401k has earned or lost. However, what seems not to be a part of the conversation is the recovery time between a stock market crash and the amount of time before the stock market fully recovers to its previous high point.

The recovery time is critical because this is the time before investors “break even” on their retirement plans (401k, IRA, Roth IRA, etc.). Unfortunately, not all Americans have the time to wait to break even, specifically someone planning to retire soon.

So let’s dive in and figure out how to eliminate some recovery time.

What is a Bear Market?

A bear market is defined as a decrease in at least 20 percent stock prices over two months. Bear markets are typically associated with economic recession and periods of high inflation. While there is no set definition, most experts agree that a bear market signals a period of pessimism and decreased investor confidence.

In general, bear markets occur when there is a widespread belief that financial markets will continue to decline. This can lead to a downward spiral, as investors sell off their holdings to avoid further losses. While bear markets can be difficult for investors, they also offer opportunities to buy assets at discounted prices. For this reason, some investors view bear markets as an opportunity to buy low and sell high.

Today’s Crash: Dow tumbles 1,000 points for the worst day since 2020, Nasdaq drops 5%

What is a Bull Market?

A bull market is a market in which prices rise or are expected to rise. The term “bull market” is most often used to refer to the stock market, but it can also apply to other areas, such as real estate or art. A bull market typically starts when investors become optimistic about the future and buy more assets, driving up prices. This increase in demand can be due to several factors, such as increasing economic growth or falling interest rates.

The essential characteristic of a bull market is that stock prices continue to rise even when there are some setbacks, such as a recession or a Wall Street crash. This resilience makes bull markets challenging to predict; they can last for years or decades before eventually ending.

Stock Market Volatility History

The following video explains the history of the volatility in the United States going back to the Great Depression.

A 20-Year Stock Market Crash History

Over the last 20 years, three distinct crashes have occurred. Of those three crashes, two have had a prolonged recovery time to get American’s 401k plans back to the break-even point.

Educational Material: The Stock Market Volatility Guide

The Great Depression

The stock market crash of 1929 was a global event that sent shockwaves throughout the world economy. The crash began in the United States but quickly spread to other countries as investors scrambled to sell their assets. The crash signaled the beginning of the Great Depression, a prolonged period of economic decline that affected countries across the globe. In the United States, the crash led to mass layoffs, bank failures, and a sharp decrease in consumer spending. The Great Depression left a lasting impact on the world economy, and its effects are still felt today.

Dotcom Bubble

The stock market downturn of 2002, also known as the Dotcom Bubble, was a bear market that lasted 2.5 years. For example, between March 25, 2000, and October 10, 2002, the S&P 500 dropped 49% in value, taking over seven years (October 10, 2007) to recover fully. Likewise, the Nasdaq stock prices fell an estimated 78.4% in 2002, taking 15 years to recover fully.

The Dotcom Bubble was a significant economic event during the late 1990s. It was characterized by a rapid increase in the value of internet-based companies, followed by a sharp decrease in those values.

Overview

Many people believe that the Dotcom Bubble was caused by investor speculation and unrealistic expectations about the potential of internet-based businesses. While there is some truth to this, it is also important to note that the Dotcom Bubble was fueled by many other factors, including the availability of venture capital, the proliferation of personal computers, and the introduction of new technologies such as broadband internet.

The Dotcom Bubble ultimately burst in 2000, leading to widespread economic loss and a decrease in the value of many internet-based companies. However, while the Dotcom Bubble was undoubtedly an adverse event, it also had some positive outcomes, such as developing new technologies and the emergence of several successful internet-based businesses.

Great Recession

Shortly after the S&P 500 had fully recovered from the Dotcom Bubble in 2007, the Wall Street crash of 2008 would occur. Between October 09, 2007, and March 5, 2009, the S&P 500 had lost 56.4% in value, taking roughly four years to recover to its previous high.

The financial crisis of 2008, also known as The Great Recession, would last 2.5 years, with an unemployment rate peaking at 10.6% and many Americans losing money in their retirement savings.

Overview

The Great Recession was a severe global economic downturn from 2008 to 2009. It was caused by several factors, including the housing bubble’s collapse, the subprime mortgage crisis, and high oil prices. As a result, more than 4 million jobs were lost in the United States alone, and many more were lost worldwide. The recession had a significant impact on the global economy, and it is often considered the worst economic downturn since the Great Depression of the 1930s.

The Great Recession began in December 2007, when the U.S. housing market collapsed. This was caused by several factors, including subprime mortgage lending, easy credit conditions, and speculative bubbles in the housing market. In addition, the housing market collapse led to a wave of foreclosures, which further contributed to the economic downturn.

In September 2008, Lehman Brothers, one of the largest investment banks in the United States, filed for bankruptcy. This event triggered a major financial and economic crisis, as credit markets froze and panic spread throughout the global financial system. Federal Reserve Bank bailed out the surviving banks to keep the economy afloat.

The Great Recession had a significant impact on the global economy. In the United States, GDP growth turned negative in the fourth quarter of 2008, and the economy officially entered a recession in December 2008. The recessionary conditions lasted until June 2009, making it the most prolonged recession since World War II.

Many other countries were also affected by the Great Recession. For example, in Europe, several countries entered into recession, including the United Kingdom, Germany, and France. Japan also experienced a recession in 2009.

The Great Recession had several adverse effects on individuals and families. First, unemployment rose sharply in many countries as companies laid-off workers in response to declining demand. This led to an increase in poverty and inequality and decreased consumer spending.

The Great Recession also had some adverse social and political effects. For example, the financial crisis led to the election of Barack Obama in the United States and the rise of populist parties in Europe. In addition, the recession caused several protests and riots around the world, as people expressed their anger at the economic conditions.

The Great Recession was a major global economic event, and its effects are still being felt today. It led to widespread unemployment, increased poverty and inequality, and decreased consumer spending. In addition, the recession had several adverse social and political effects, including the election of Barack Obama in the United States and the rise of populist parties in Europe.

2020 Market Crash

The global stock markets fell the fastest between February 20, 2020, and April 7, 2020. Black Monday II’s highest daily drop of roughly 12% occurred on March 16, 2020. After that, the market quickly recovered, but volatility still happens in today’s climate leaving Americans wondering if the market will crash again.

What Happens To My IRA If The Stock Market Crashes?

When the market crashes, it can significantly impact your IRA. Your account value could take a significant hit if you’re heavily invested in stocks. However, there are some things you can do to help protect your IRA from a crash.

Diversify Investments

One option is to diversify your investments. This means investing in a mix of different asset classes, such as bonds, real estate, and cash. This can help protect your IRA from a crash because not all asset classes will be impacted in the same way.

Stop-Loss Orders

Another option is to use stop-loss orders. You can place these orders with your broker, that will automatically sell your investments if they fall below a certain price. This can help to limit your losses in the event of a stock market crash.

Rebalancing

Finally, you may want to consider rebalancing your IRA. This means selling some of your investments that have increased value and using the proceeds to buy other investments that have lost value. This can help you maintain a diversified portfolio and potentially reduce your losses in a stock market crash.

While there’s no guaranteed way to protect your IRA from a stock market crash, these strategies can help you minimize the impact on your account.

Can You Lose Your 401k If The Market Crashes?

While a 401(k) can be a great way to save for retirement, it’s essential to understand how it works. Your 401(k) is invested in stocks, which means that the value of your account can go up or down depending on the stock market. If the stock market crashes, you could lose money in your 401(k). This is why it’s essential to diversify your investments and not put all of your eggs in one basket.

While you may lose money in the short term if the stock market crashes, over the long term, it’s more likely that the market will rebound, and you’ll be able to make back your losses.

How To Protect A 401(k) and IRA Before A Stock Market Crash

The saying goes, “Don’t Put All Your Eggs in One Basket,” which means not investing your retirement into just one type of investment. However, I believe the following advice I’m providing applies as well.

The goal to steadily grow a 401k or IRA is to diversify, and diversification can vary based on current age, retirement savings goals, risk tolerance, and a target retirement age. Diversifying in both aggressive and conservative investments will allow for a balance.

Where do you put your money before a stock market crashes?

Diversifying a portfolio requires a proactive mentality rather than a reactive mentality. The mental state during a bull market can often lead to smarter decisions than an investor making decisions during a stock market decline.

Find conservative retirement savings plans to safely grow your retirement plan and protect the retirement plan in volatile times. Annuities are a great example of a conservative savings plan.

Where To Put My Money Before The Market Crashes?

Many people are worried about the stock market crashing. They think their money will disappear overnight if they don’t put it in the right place. While it’s true that the stock markets can be volatile, there are some steps you can take to protect your money.

  • One option is to invest in bonds. Bonds are debt securities that governments and corporations issue. They typically have a fixed interest rate and a maturity date, which is the date when the bondholder will receive their money back.
  • Another option is to invest in gold. Gold is a precious metal that has been used as a store of value for centuries. As a result, it tends to hold its value during economic turmoil.
  • Finally, A fixed index annuity is an insurance product that offers a guaranteed rate of return, plus the potential for additional growth based on the performance of a stock market index. If the stock market crashes, your investment in a fixed index annuity will not go down in value. The guaranteed rate of return provides a floor for your investment, and the index-linked growth potential gives you the stock market’s upside without the downside risk.

So if you’re worried about the stock market crashing, consider investing in bonds, gold, or indexed annuities.

How To Protect A 401(k) and IRA During a stock market crash

If you haven’t been proactive in a stock market crash, don’t fret. When crash planning, a 401(k) or IRA owner can take a few options, waiting for the market to recover or moving the money into a conservative vehicle like a deferred annuity.

Most deferred annuities offer principal protection, which means you can’t lose money if the stock market takes a nosedive. Annuity owners either earn an interest rate or gain nothing at all (nor lose nothing). The annuity’s value stays the same.

The variable annuity and the registered index-linked annuity are the exceptions to this rule, and an owner can lose some or all of their money if the stock market plummets.

Recovery Tip: Fixed indexed annuities can offer a premium bonus for new customers. The bonus could recover money lost from the crash.

How To Protect A 401(k) and IRA After a stock market crash

After a stock market crash, the 401k or IRA’s value is at a low point. Once again, the retirement plan owner can wait until the market recovers, which can take years, or they can take advantage of the bear market in a unique way.

Educational Material: The Power Of Protection

Fixed Index Annuities

Deferred annuities are among the safest 401k and IRA investments during a recession. Some consider it “retirement crash insurance.” A fixed index annuity can earn interest based on a market index’s positive performance (movement) without the risk exposure and lock in every gain made. This protection means three things:

  • Growing a 401k or IRA based on a positive movement of an index both in a bullish market and a bearish market
  • Keeping all the interest and never losing the gains
  • Tax-efficient investing by tax-deferral

The Benefits

  • Lock-In Gains: This means a fixed index annuity owner keeps all of their interest earned and never loses those gains in the future due to a crash. The technical term for this feature is called the Annual Reset.
  • Positive Movement of a Market Index: Fixed index annuities measure a particular stock market index’s performance from one specific date to another, typically one or two years from each other. Interest can be earned even in a bear market if there is a positive movement between the two dates. The interest earned is based on the movement, not the daily value.
  • Negative Movement of a Market Index: If the index’s movement is negative, the annuity owner earns a “zero credit,” The annuity’s value stays the same as the previous year (minus any fees).

Earning interest based on positive movements and locking in gains means a fixed index annuity owner can grow their retirement plan during a recession as the bear market transitions to a bull market. In addition, achieving growth during the upward movement of an index means avoiding the recovery wait time an investor would have to endure if investing directly in the stock market.

How a Fixed Index Annuity Can Help

When it comes to saving for retirement, many people choose to invest in the market. While this can be a great way to grow your savings, it also comes with some risks. The market is susceptible to volatility, leading to losses in your portfolio.

One way to help mitigate the volatility risk is to invest in a fixed index annuity. This type of annuity provides you with a guaranteed income stream for retirement, regardless of how the market performs. Additionally, fixed index annuities offer the potential for growth on your investment, giving you the best of both worlds – security and growth potential.

If you’re looking for a retirement savings strategy that can help you weather the ups and downs of the market, a fixed index annuity may be right for you.

YouTube video

Conclusion

After 11 years of riding the longest bull market ever, the next crash is inevitable, and a bear market will come out of hibernation. So before you seek out an Asset Management or Wealth Management firm, know your options first.

It becomes a matter of how an investor prepares for the next crash and takes advantage of the next bear market or recession. Most deferred annuities are great vehicles to invest money, protect against a crash, and can grow a retirement plan during a bear market. In contrast, others endure another prolonged recovery period that could last for years. So request a quote to compare your options. Here’s to investing better!

Protect Your Retirement Savings Plan From A Stock Market Crash.

Request A Quote

Get help from a licensed financial professional. This service is free of charge.

Contact Us
First
Last

Frequently Asked Questions

Do you lose all your money if the stock market crashes?

Money in the market is at risk of loss, and a crash could lead to losing all of your money, depending on the type of investment.

Where can I put my money before the market crashes?

For retirement savings such as a 401(k) or IRA, you may want to consider saving in a more stable investment, such as a short-term fixed annuity. With a fixed annuity, your money is guaranteed to grow at a set interest rate for a specific period, making it a safe investment choice during market downturns. Then, after the term is completed, move the retirement plan back into the market.

How do you protect money from a stock market crash?

You can do a few things to protect your money from a stock market crash. One is to invest in assets that tend to be less volatile, such as deferred annuities, bonds, or cash. Another is to diversify your portfolio to include different asset classes, which can help offset the losses in one sector with gains in another. Finally, you can use stop-loss orders to limit your downside risk.

What is the best thing to do when the market crashes?

When the market crashes, the best thing to do is stay calm and not panic. It can be tempting to sell all of your stocks when the market is in free fall, but this is often the worst thing you can do. Instead, try to ride out the storm and wait for the market to rebound. Many investors who panicked and sold during the last market crash regret it now that the market has recovered.

How do you protect your 401k before a market crash?

You can do a few things to protect your 401k before a market crash. First, one must make sure that you are diversified and not too heavily invested in one stock or sector. Another is to rebalance your portfolio so that it is more conservative. Finally, any old 401(k) plans from previous employers should be rolled over into an IRA or IRA annuity to have more control over how your money is invested.

What goes up when the stock market crashes?

There are a few things that go up when the stock market crashes. One is the price of safe haven assets, such as gold and silver. Another is the price of bonds, which tend to be less volatile than stocks. Finally, the price of put options usually increases since investors are looking for ways to hedge their portfolios.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

Scroll to Top