How To Protect and Grow Your Retirement Plan After a Stock Market Crash

Shawn Plummer

CEO, The Annuity Expert

Is the market about to crash? In this guide, learn how to protect and grow a 401k, IRA, and investments before, during, and after a stock market crash. 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 generally about either the stock market rising or the market 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 amount of 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.

The History of the US Stock Market

What is a Bear Market?

A Bear Market is a bond or stock market period in which investment prices have fallen at least 20% from their previous high.

What is a Bull Market?

A Bull Market is a bond or stock market period in which investment prices have risen at least 20% from their previous low.

Stock Market Volatility History

A 20-Year Stock Market Crash History

Over the last 20 years, there have been 3 distinct stock market crashes have occurred. Of those 3 crashes, 2 have had a prolonged period of recovery time to get American’s 401k plans back to the break-even point.

S&Amp;P 500 History

Dotcom Bubble

The stock market downturn of 2002, also known as the Dotcom Bubble, was a bear market that lasted 2.5 years. Between March 25, 2000, and October 10, 2002, the S&P 500 dropped 49% in value, taking over 7 years (October 10, 2007) to recover fully. The Nasdaq fell an estimated 78.4% in 2002 as well, taking 15 years to recover fully.

Great Recession

Shortly after the S&P 500 had fully recovered from the Dotcom Bubble in 2007, the stock market 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 4 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.

2020 Stock Market Crash

Between February 20, 2020, and April 7, 2020, the global stock market had the fastest fall in financial history. The highest daily drop so far of roughly 12% occurred on March 16, 2020, nicknamed Black Monday II. After that, the market quickly recovered, but volatility still occurs in today’s climate leaving Americans wondering if the stock market will crash again.

How To Invest Before, During, and After a Stock Market Crash

The saying goes, “Don’t Put All Your Eggs in One Basket,” which obviously 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. By diversifying in both aggressive and conservative investments will allow for a balance.

Before a stock market crash

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.

With that said, find conservative retirement savings plans to not only safely grow your retirement plan but also protect the retirement plan in volatile times. Annuities are a great example of a conservative savings plan.

During a stock market crash

If a stock market crash occurs, and you haven’t been proactive, don’t fret. An investor can take a few options, waiting for the market to recover or move 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 earn 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.

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.

Investing Safely

Fixed Index Annuities

A fixed index annuity offers the opportunity to earn interest based on the positive performance (movement) of a market index without the risk exposure and lock in every gain earned. This means 3 things:

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

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 stock market 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 specific date, typically one or two years from each other. If there is a positive movement between the 2 dates, interest can be earned even in a bear market. The interest earned is based on the movement, not the daily value.

Negative Movement of a Market Index: If the stock market 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).

By 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 With Stock Market Volatility.

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After 11 years of riding the longest bull market ever, the next stock market 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 stock market crash and takes advantage of the next bear market or recession to come. 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 here’s to investing better!

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At The Annuity Expert, we strive to help you make confident financial decisions regarding annuities. Content provided is created by an independent licensed financial professional.

The Annuity Expert is an online insurance agency that provides the widest variety of annuities in the United States. When you buy an annuity directly from us, we receive a predetermined commission from the insurance company (not you). While your annuity is active, clients are not charged any servicing or management fees. Learn more.

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. 

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