How to Stay Calm When Market Volatility Hits Your 401(k)
Wondering what to do with your 401(k) during market volatility? While market downturns can be unsettling, panic selling, stopping contributions, and taking early withdrawals often cause more damage to retirement savings than the decline itself.
Key Takeaways
- The average 401(k) balance fell during the first quarter of 2026, but markets have since recovered those losses and more.
- Panic selling, stopping contributions, and taking early withdrawals may make temporary market declines far more damaging.
- Market corrections are a normal part of long-term investing and have historically been followed by recoveries.
- Automatic contributions help investors stay disciplined when emotions run high.
- Professional guidance may help you make more objective decisions during periods of market volatility.
Why Some 401(k) Investors Are Feeling Nervous
The first quarter of 2026 was rough for many retirement savers.
After the U.S. and Israel attacked Iran on February 28, the stock market sold off hard.
The S&P 500 dropped 4.35% in Q1. The Nasdaq fell 6.96%. The Dow was down 3.19%. [1]
According to Fidelity, the nation’s largest 401(k) provider, the average 401(k) balance fell 4% to $141,000 in the first quarter of 2026. [1]
Here’s the good news: Markets have since rebounded.
As of early June, the S&P 500 is up nearly 10% year to date, and the Nasdaq has gained nearly 15%. [1]
But not everyone stayed the course.
According to Fidelity, more workers tapped their retirement accounts during the downturn.
About 2.4% of workers took out a new loan from their 401(k) in Q1 2026, up from 2.3% in Q1 2025. [2]
While the market has recovered, the data suggests many investors made emotional decisions during the downturn – mistakes that may have a far greater impact on retirement outcomes than the temporary decline itself.
What Not to Do When the Market Drops
Market downturns can be stressful, but the biggest threat to your retirement savings is often how you respond. Here are 3 common mistakes we see that may turn a temporary market decline into a long-term setback.
Don’t Panic and Sell
Market corrections are expected, and we have always recovered relatively soon so we believe longer-term investors should consider corrections an opportunity, as opposed to a reason to panic.
Historically, the market has recovered from 5-10% corrections in an average of about 3 months. 10-20% corrections have averaged about 8 months.
But that doesn’t make it easier in the moment.
When your 401(k) takes a hit, it’s natural to feel anxious – even fearful.
That emotional response may tempt you to sell off investments or stop contributions altogether.
Don’t.
Panic selling locks in your losses and typically turns a temporary dip into a permanent setback.
And yet, many investors do exactly that.
Instead of reacting emotionally, remind yourself:
- Volatility is part of investing.
- Historically, the market has always recovered.
- Your 401(k) is a long-term plan – not a short-term gamble.
We believe the real danger isn’t the dip – it’s the decision to abandon your plan because of it.
When the market takes a turn down, always remember that downturns don’t last forever.
Don’t Stop Contributing
We think one of the worst things you can do during a market downturn is stop contributing to your 401(k).
Think of it this way: When the market drops, stocks go on sale.
Every dollar you invest during a downturn buys more shares than it would when prices are high.
Over time, that could mean stronger growth when the market recovers.
Keep contributing. Keep investing.
If your employer offers a match, make sure you’re capturing every dollar of it.
That’s what we refer to as free money, and it buys more when prices are low.
The average total 401(k) contribution rate, including employer and employee contributions, edged up to 14.4% in Q1 2026 – a record high, and just shy of Fidelity’s suggested savings rate of 15%. [2]
The majority of savers who stayed on track did so because automatic contributions kept working even when the headlines were scary. [2]
Try not to freeze when the market gets volatile. Keep investing, especially when prices are low.
Don’t Raid Your 401(k)
More Americans are pulling money from their 401(k)s right now out of financial pressure.
You’re not alone if things feel tight.
But a hardship withdrawal should always be a last resort.
Early withdrawals may trigger taxes and a 10% penalty.
And the long-term compounding loss is even larger. Money pulled out today stops working for you, potentially for decades.
If cash flow is tight, consider redirecting a small amount – even $25 to $50 a month –into a high-yield savings account as a buffer before you ever touch your 401(k).
Related Read: 401(k) Hardship Withdrawals Hit Record Highs
5 Strategies for Staying Calm during Market Volatility
While you can’t control the market, you can control how you respond to it. These 5 strategies may help you stay focused, avoid emotional decisions, and keep your retirement plan moving forward.
Strategy 1: Automate Everything
The best way to stay consistent during market turbulence is typically to remove yourself from the equation.
Set up automatic contributions so your money goes in every paycheck, no matter what the market is doing.
You don’t have to think about it. It just happens.
Strategy 2: Focus on What You Can Control
You cannot control the Iran war. You cannot control the Fed. You cannot control the S&P 500.
Here’s what you can control:
- How much you contribute each paycheck.
- Whether you capture your full employer match.
- Whether you have an emergency fund so you don’t have to touch your 401(k).
- Whether you have the right investment mix for your age and goals.
Focus there. That’s where we feel your energy belongs.
Strategy 3: Reframe Downturns as Opportunities
When the market drops, your 401(k) contributions buy more shares at lower prices. That’s not a loss; that’s an opportunity.
When the market recovers – and historically it always has – those shares are worth more.
Long-term investors who stayed the course through past downturns have shown to come out stronger on the other side.
The ones who panicked and sold missed the rebound.
Try to remember that you’re playing a long game.
A down market today may be setting you up for stronger growth tomorrow.
Strategy 4: Avoid Checking Your Balance Too Often
Market volatility may feel unsettling in the moment, but it’s just one piece of a much bigger picture.
Selling out of the market or making big changes based on short-term performance may lead to missed opportunities.
In fact, financial professionals repeatedly stress the importance of time in the market rather than timing the market.
While no one can predict exactly what might happen, missing even a few of the market’s best days may reduce long-term returns.
If you panic and pull out during a downturn, you not only lock in your losses – you also will most likely risk missing the rebound.
Strategy 5: Get Professional Guidance
If market volatility has you second-guessing your strategy, or if you’re getting close to retirement, it may be time to bring in a professional.
Professional advice may help you take the emotion out of investing and make decisions based on data, goals, and strategy – not headlines or gut feelings.
Whether you’re unsure how to rebalance your 401(k), not confident you’re saving enough, or just want assurance knowing someone is monitoring your account, having a trusted expert in your corner may make all the difference.
401(k) Maneuver provides independent, professional account management to help employees, just like you, grow and protect their 401(k) accounts.
Our goal is to increase your account performance over time, manage downside risk to minimize losses, and reduce fees that are hurting your retirement account performance.
We review and rebalance your account for you with the goal in mind of keeping you in what is working and out of what is not.
With 401(k) Maneuver, our goal is for you to go about your life doing what you love with confidence, knowing we are managing your 401(k) for you.
Have questions or concerns about your 401(k) performance? Click below to book a complimentary 15-minute 401(k) Strategy Session with one of our advisors today.
Sources
[1] Moody Bank Wealth Management. Wealth Management & Trust Market Review: Q1 2026. April 15, 2026. https://www.moodybank.com/news/post/wealth-management-trust-market-review-q1-2026
[2] CNBC / Fidelity Investments. More workers are raiding their 401(k)s as average balances fall, Fidelity says. May 28, 2026. https://www.cnbc.com/2026/05/28/fidelity-average-401k-balances-q1-2026.html
[3] Fox Business. How Should You Handle Your 401(k)/IRA During Market Volatility. 2025. https://www.foxbusiness.com/markets/how-should-you-handle-your-401k-ira-during-market-volatility
