How to Protect Your 401(k) from Market Crashes
written by Mike Ballew March 15, 2020

This one thing will protect your 401(k) from market crashes more than any other. If you don’t know what it is, you owe it to yourself to find out. You can prevent your 401(k) from losing 10, 20, even 50 percent.

Save your 401(k) from Falling

Access your 401(k) account online and look at the available investment options. You should see a fund labeled Stable Return Fund, Settlement Account, Money Market Fund or something similar. This type of fund invests in U.S. Treasury bonds, which is the safest investment in the world. Investment professionals consider U.S. Treasury bonds to be virtually risk-free.

The description for this type of fund should read something like this: “The fund seeks to provide investors with a moderate level of stable income without principal volatility." The key phrase in that sentence is without principal volatility. Principal is the money you’ve paid into your retirement account (along with your employer if they provide matching contributions). Annual returns for these types of funds are typically in the range of 1-2%.

Managing your Account

If you think an annual return of 1-2% doesn’t sound like much, you’re right, it isn’t. Normal investment returns are more like 5-10%. So how are you going to retire with such a low return?

This isn’t about growing your nest egg, it’s about preserving capital. You don’t leave your money in there forever. When the storm passes, you move your money from the stable fund back into your regular investments.

The easiest way to manage your account is to keep both your normal fund(s) and your stable fund active at all times. That way, the next time you need to make a change you won’t have to research it again. When you want to go into protection mode, you move 99% of your assets into the stable fund and leave 1% in your normal investments. When you are ready to return to normal, you move 99% of your assets into your regular investments and keep 1% in the stable fund. 

Stay Abreast of the Markets

The mechanics of moving your retirement savings from the stock market into a safe haven are simple enough, but there is another important ingredient to this strategy. You need to stay abreast of the stock market. The average person is unaware of the happenings on Wall Street until it’s too late. By the time every headline screams “Dow Down 1,000 Points!", you have already missed the boat. Moving your money from regular investments into a stable fund at a market bottom will do more harm than good. 

Even if you are a stock market neophyte, surely you have heard the expression “buy low, sell high." It’s not just a saying, it’s what you do. If you sell when the market hits bottom, you turn your paper losses into real losses and chances are you will miss out on the recovery.

The key to successfully implementing this strategy is to maintain an awareness of the stock market. You don't have to become that person who’s obsessed with the market and checks their 401(k) on an hourly basis. But keep an eye on it without going to extremes.

If you know nothing about investing, all you need is a little education. The “Dow" so frequently referred to in the news is the Dow Jones Industrial Average. It’s an amalgamation of stock prices for 30 prominent companies that represent the overall market. On a typical day, the Dow goes up or down maybe a hundred points or so. A one-day move of more than 200 points should get your attention; it bears watching. If you see the Dow move anywhere near 1,000 points in a single day, it’s either (up) fantastic news or (down) a catastrophe.

There is more to it than that. To really understand the stock market, you need to read some books. Learning how to distinguish between head-fakes and genuine trends requires time and experience.


The advent of Covid is a catastrophe. In countries like China and Italy where the virus began, the streets are empty and the cities have become ghost towns. No one goes out, the restaurants and sports stadiums are empty, as are the stores, shopping malls, movie theaters, and airports. 

That will be us in a few days. The only difference between our situation and theirs is time. There is no cure in sight for the virus so it’s inevitable that we will follow suit. When you consider consumer spending constitutes two-thirds of the U.S. economy, it’s not hard to see the impact this will have. 

We may be headed into a recession, and it will be different from other recessions. No amount of government intervention like cutting interest rates or eliminating payroll taxes will bring us out of it. Those measures are designed to boost demand. Until there is a cure or a vaccine, people aren’t going anywhere and they’re not doing anything. It translates into billions of dollars in lost revenue, along with job losses, declining home values, and all the things that accompany a typical recession. 

Closing Remarks

If you missed the boat this time, do not despair. Leave your 401(k) where it’s at and it will come back. Let this serve as a lesson to watch the markets more closely going forward. Next time you will see it coming. No one can time the market exactly, but if you get out towards the top and buy back near the bottom, you will significantly boost your retirement savings. While everyone else is wringing their hands and hoping to break even, you will be making money hand over fist.

Photo credit: Pixabay Eggstack News will never post an article influenced by an outside company or advertiser. Our mission is to help you overcome uncertainty about retirement planning and inspire confidence in your financial future.
Eggstack founder, Financial Planning Association member, engineer, and software developer.