Personal Finance
As Dow nears 40,000, here’s what experts say to do in case of a pullback
A man sits on the Wall street bull near the New York Stock Exchange (NYSE) on November 24, 2020 in New York City.
Spencer Platt | Getty Images
The stock market could hit a milestone if the Dow Jones Industrial Average reaches 40,000.
However, even as stocks have climbed higher, investors are worried there could be a pullback, financial advisors say.
They’re not alone in those concerns.
A recent CNBC survey of investment professionals found 61% think the market has run too far too fast and a market drop could be coming.
“It does feel like we’re at an inflection point where things could go either way,” said Christine Benz, director of personal finance and retirement planning at Morningstar.
Will there be a pullback?
After a mostly uninterrupted market rally over the past four or five months, it would not be surprising to see a pullback, said Angelo Kourkafas, senior investment strategist at Edward Jones.
That would more likely come in the form of a temporary correction rather than a prolonged bear market, he said.
For investors who have gravitated toward cash, certificates of deposit, or bonds, a pullback may be an opportunity to deploy those funds in the market, Kourkafas said.
If you’re investing toward your retirement or other life goals, it’s best to avoid trying to time the market, said Ted Jenkin, a certified financial planner and the CEO and founder of oXYGen Financial, a financial advisory and wealth management firm based in Atlanta.
“The stock market is a long-term investment,” said Jenkin, who is also a member of CNBC’s Financial Advisor Council.
Will the election hurt the markets?
Investors are jittery that the presidential election results may throw the markets off track, surveys show.
But experts say those worries are misguided.
“It is really very hard to find any evidence in the data that politics is a long-term determinant of market performance,” Kourkafas said.
However, there may be increased volatility in the months preceding the election, he said.
What’s unique this time around is we are already familiar with both of the likely candidates — current President Joe Biden and former President Donald Trump — and the markets have performed equally well under both leaders, he said.
Instead, the outlook may depend more on other factors such as interest rates, corporate earnings and economic growth, he said.
Financial advisors including Louis Barajas, a CFP and enrolled agent, said their clients are concerned the election may affect their portfolios.
“I tell them, ‘Listen, presidents come, presidents go, the economy’s going to change. But in the long term, the market tends to be up,'” said Barajas, who is CEO of International Private Wealth Advisors in Irvine, California, and also a member of the CNBC FA Council.
Barajas said he steers his clients to focus on their personal goals rather than on outside events.
How to make sure you’re protected ‘no matter what happens’
Today’s market uncertainty is a reminder of the value of humility, said Morningstar’s Benz.
And the best way to express humility in portfolios is to diversify, she said.
“No matter what happens, we’re reasonably well protected,” Benz said.
For young investors, that may mean moving away from U.S. stocks to non-U.S. holdings, she said. That may be done through a fund that reflects global market capitalization, such as the Vanguard Total World Stock ETF.
Older investors may want to take advantage of higher fixed-income yields and add safer assets to their portfolios, she said. That can include cash and short- and intermediate-term high-quality bonds to build a runway to spend from, even if stocks do go down.
“You can have a safer portfolio and expect to earn a decent rate of return today,” Benz said.
If you’re already in retirement and spending from your portfolio, it’s worth having those safeguards in place.
Finding the right mix of assets will depend on your personal timeline.
For financial goals that aren’t at least five years away, it makes no sense to invest in the stock market, Jenkin said.
To test your own portfolio allocation based on your age, Jenkin suggested following the rule of 120 – subtract your age from that number to find out how you should be invested. So if you’re 60 years old, for example, a 60% allocation to stocks may make sense.
When it comes to revisiting your portfolio allocations, it’s wise to set your own schedule rather than react to market or other news events.
“Make a plan to do that once a year or so,” Benz said.
Franckreporter | E+ | Getty Images
Millions of older workers lost their jobs during the Covid-19 recession.
Between March and April 2020, 5.7 million workers ages 55 and up lost their jobs, according to the Economic Policy Institute’s analysis of federal data.
Now, five years since the onset of the pandemic, some older workers may be benefitting from policies that help them extend their careers.
“We’re seeing more and more employers putting in benefits and programs that help retain some of that older workforce,” said Carly Roszkowski, vice president of financial resilience programming at AARP.
These programs include phased retirement plans, part-time schedules and remote or hybrid work options, Roszkowski said.
Money is still the main reason why people want to stay in the workforce longer, particularly as inflation has pushed prices higher, according to Roszkowski. But there are also other motivators, including social connections, a sense of purpose or meaningful work that may help inspire individuals to continue to work.
More from Personal Finance:
Should you wait to claim Social Security? Here’s what experts say
Americans more worried about running out of money in retirement than dying
Nearing retirement? These strategies can protect from tariff volatility
Working remotely may help extend careers
One lasting impact of the pandemic — increased flexibility to work remotely — may be helping some older workers delay retirement, according to new research from the Center for Retirement Research at Boston College.
The research finds that an individual who is working remotely is 1.4 percentage points less likely to retire than a worker in an otherwise comparable situation.
Based on those results, that could enable workers to extend their careers by almost a full year.
“If they delay claiming Social Security for that year, or delay digging into their 401(k) for that year, or contribute to their 401(k) for that year, that’s all going to be good for their finances,” said Geoffrey Sanzenbacher, a research fellow at the Center for Retirement Research and professor of the practice of economics at Boston College.
Whether or not individuals can work remotely comes down to employer preference. For example, some companies — JPMorgan, AT&T, Amazon and Dell — have moved to five-day in-office policies. The federal government, which has a workforce that skews older, has also moved to enforce in-person work policies under President Donald Trump.
Research suggests older workers benefit from remote work. In particular, the employment rate of older workers who have a disability increased by 10% following the pandemic, according to the Center for Retirement Research.
To be sure, not all careers may allow for remote work.
What career experts say to do now
Career experts say there are certain ways older workers can help extend the longevity of their working years.
Older workers should focus on upscaling — gaining new skills or boosting their current skill set — to help show off their skills to employers, said Vicki Salemi, career expert at Monster. That may be through a certification, online class or volunteering, she said.
Having a foundational, basic understanding of technology tools used in the workplace is also essential, said Kyle M.K., a talent strategy advisor at Indeed.com.
Older workers may also want to show off their relationship building skills, which can set them apart from younger generations that are more digitally inclined, according to Salemi.
Mentoring, conflict resolution or other interpersonal skills are highly sought after skills that should be highlighted, where possible, M.K. said.
By keeping digital profiles up to date on job search sites, older workers can emphasize their skills and experience, he said.
“Digital presence is sometimes the very first introduction that the employer will have with you,” M.K. said.
Don Mason | The Image Bank | Getty Images
If you’re eager to increase your retirement savings, a lesser-known 401(k) feature could significantly boost your nest egg, financial advisors say.
For 2025, you can defer up to $23,500 into your 401(k), plus an extra $7,500 in “catch-up contributions” if you’re age 50 and older. That catch-up contribution jumps to $11,250 for investors age 60 to 63.
Some plans offer after-tax 401(k) contributions on top of those caps. For 2025, the max 401(k) limit is $70,000, which includes employee deferrals, after-tax contributions, company matches, profit sharing and other deposits.
If you can afford to do this, “it’s an amazing outcome,” said certified financial planner Dan Galli, owner of Daniel J. Galli & Associates in Norwell, Massachusetts.
“Sometimes, people don’t believe it’s real,” he said, because you can automatically contribute and then convert the funds to “turn it into tax-free income.”
However, many plans still don’t offer the feature. In 2023, only 22% of employer plans offered after-tax 401(k) contributions, according to the latest data from Vanguard’s How America Saves report. It’s most common in larger plans.
Even when it’s available, employee participation remains low. Only 9% of investors with access leveraged the feature in 2023, the same Vanguard report found. That’s down slightly from 10% in 2022.
How to start tax-free growth
After-tax and Roth contributions both begin with after-tax 401(k) deposits. But there’s a key difference: The taxes on future growth.
Roth money grows tax-free, which means future withdrawals aren’t subject to taxes. To compare, after-tax deposits grow tax-deferred, meaning your returns incur regular income taxes when withdrawn.
That’s why it’s important to convert after-tax funds to Roth periodically, experts say.
“The longer you leave those after-tax dollars in there, the more tax liability there will be,” Galli said. But the conversion process is “unique to each plan.”
Often, you’ll need to request the transfer, which could be limited to monthly or quarterly transactions, whereas the best plans convert to Roth automatically, he said.
Focus on regular 401(k) deferrals first
Before making after-tax 401(k) contributions, you should focus on maxing out regular pre-tax or Roth 401(k) deferrals to capture your employer match, said CFP Ashton Lawrence at Mariner Wealth Advisors in Greenville, South Carolina.
After that, cash flow permitting, you could “start filling up the after-tax bucket,” depending on your goals, he said. “In my opinion, every dollar needs to find a home.”
In 2023, only 14% of employees maxed out their 401(k) plan, according to the Vanguard report. For plans offering catch-up contributions, only 15% of employees participated.
Is time running out for accounting’s 150-hour rule?
Millions of older workers lost jobs during Covid. Prospects have improved
Here’s what your student loan bill could be under a new GOP plan
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Personal Finance1 week agoConsumers are making different financial choices in response to tariffs
-
Economics6 days agoECB members say inflation job nearly done but tariff risks loom
-
Economics1 week agoBusiness already are trying to pass tariff cost onto customers, Fed report says
-
Accounting6 days agoAt Schellman, AI reshapes a firm’s staffing needs
-
Economics1 week agoIf Trump wants rate cuts, he would likely need to replace the Fed’s full board
-
Economics5 days agoAmericans are getting flashbacks to 2008 as tariffs stoke recession fears
-
Economics6 days agoTrump insists bond market tumult didn’t influence tariff pause: ‘I wasn’t worried’
-
Economics7 days agoOrders for big-ticket items like autos and appliances surged 9.2% in March in rush to beat tariffs