MW 'I'll retire when I'm dead': My 401(k) lost $50,000 in the market turmoil. I'm in my early 40s. What should I do now?

By Quentin Fottrell

'I have no clue how the funds in my 401(k) are invested'

Dear Quentin,

I have not been attentive to the stock market until now, but I see that it's fallen a lot. I lost $50,000 in my 401(k). I'm in my early 40s, so there is time. I have no clue how the funds in my 401(k) are invested, or how they're managed, etc. I also don't know if I'm contributing the maximum amount every year. What would you tell me to do: Wait it out, or maximize my contribution so I'm acquiring shares at a lower cost during a downturn?

I'll retire when I'm dead.

Suddenly 401(k) Obsessed

Related: 'It's been a scary ride': My family has $800K in stocks. We lost 2 years of market gains in a few weeks. Do we sell - or buy?

Dear Suddenly,

Yes and yes. Do both.

Wait it out - you are in your early 40s, after all - and maximize your retirement savings. The silver lining to the recent stock-market tumble: You're paying attention to your 401(k). Your first task is to make sure you are contributing, your second task is to maximize your contributions to make the most of your employer match, assuming you have one, and your third task, if you accept it, is to manage how your money is invested based on your age and risk tolerance.

Stock-market downturns are often a time to buy stocks, not sell the ones you have, so this is a perfect time to review your 401(k) allocations and make sure you are taking advantage of your maximum contributions and employer match. "If you start in your 30s, save 15%-20% of your salary, including employee match, per year for retirement," according to Charles Schwab. "If you start in your early 40s, save 25% to 35% of your salary, including employee match."

Look at it this way, how much attention would you be paying to your 401(k) if the stock market was not in correction territory and had risen 10% over the past week? Would you be feeling good about having a retirement account, and enjoying a cocktail to celebrate? Good news should spur us to review and manage our investments in the same way as bad news, but neither should push us to make any impulsive decisions we might regret later based on emotion.

A 'functioning' market

The market has had a bull run. Nothing travels in a straight line (except, perhaps crows - and even they like to circle their nests before landing). "Markets were priced with little room for error," says Alan Wynne, global investment strategist at J.P. Morgan. At the start of the year, the S&P 500 traded around 22.5 times earnings, "the highest multiple in the last 20 years outside of the COVID-19 period. Now, the S&P 500 is down about 10% from its February highs."

He said the recent pullback is due to increased political and economic uncertainty, rising tariff risks and jitters related to U.S. tech dominance. "The correction has brought index multiples to their five-year average of 20x as investors have priced in more risks. It's important to remember that pullbacks like this are a feature of healthy market functioning, not a bug. Over the last 15 years, we have experienced four different growth scares, none of which led to a recession."

Employer-sponsored 401(k) plans include equity funds, fixed-income funds, index funds, money-market funds, target-date funds, environmental, social and governance $(ESG)$ funds, and individual stocks and bonds. Actively-managed funds will be more expensive, but you have more control over them, and they come with more volatility. That said, if your 401(k) is worth $200,000 and you lost $50,000, that's a bitter pill to swallow. If it's worth $1 million? That's a horse of a different color.

Advantage of a 401(k)

The big advantage of having a 401(k) is that the money comes out of your paycheck every month, and you don't have to think about it. You benefit from compounding; your initial capital investment makes money, when the stock market is rising, in addition to the interest you've made on that capital investment. Many 401(k)s also come with an employer match, which could be based on a percentage of your salary or a percentage of the money you invest.

Workers can contribute $23,500 a year to their 401(k) plans in 2025, up from $23,000 for 2024, according to the Internal Revenue Service. That also includes 403(b), governmental 457 plans, and the federal government's Thrift Savings Plan. The catch-up contribution limit for employees aged 50 and over is $7,500 for 2025 in most 401(k), 403(b), governmental 457 plans, and $11,250 for those aged 60, 61, 62 and 63 who are members of these savings plans.

Stock-market returns are not guaranteed in any given year. However, since about 1800, stocks have consistently returned an average of 6.5% to 7% per year after accounting for inflation, according to an analysis by McKinsey economists. What's more, their analysis concluded that market returns over the past 25 years are within that historical range. However, there are annual exceptions. The S&P 500 SPX fell in 2000, 2001, and 2002, 2008 and 2022.

Bad news sells

McKinsey's takeaway for investors: Bad news sells. Good news? Not so much. "Don't get sidetracked by short-term stock movements, which tend to stir up lots of headlines. Reasonable and largely stable returns (as measured by low stock-price volatility over 10-year periods) will encourage more individuals to invest in the stock market," McKinsey says. "That, in turn, will provide capital for more growth and broader creation of wealth."

You have another 20 years at least until your retirement. If you look at the trajectory of the stock market over the past 20 years, you will see it's been quite a drama. The 2008 subprime mortgage crash, the COVID-19 pandemic, and now this. There will be more good news, valleys and peaks, along the way, so you need to buckle up for the long-haul flight. No one ever said being an investor is easy, and you only lose your $50,000 if you actually sell.

J.P. Morgan's Wynne said one of the most honest things I've heard in recent days, which is saying something given analysts are paid to make predictions. "No one knows when and where the bottom will be," he said, "but historically, in the six months following growth scares, the S&P 500 rallied 24% on average from the trough. We think it's prudent for investors to leg in over time to avoid missing the subsequent rally."

Max out. Keep investing.

Related: 'Is it finally time to freak out?' I'm in my 50s and worried about the $650K in my 401(k).

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.

More columns from Quentin Fottrell:

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-Quentin Fottrell

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March 17, 2025 05:31 ET (09:31 GMT)

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