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How Should You Modify Your 401(K) in a Bear Market?

The Dow Jones Industrial Average lost roughly 460 points on Thursday, sending markets back into a bear market and leaving investors — including those with 401(k)s and other retirement accounts — once again unsure about how to handle their finances.

The Dow entered bear territory after dropping more than 20% from its record high, which it reached in January, according to CNN. In the meantime, amid a whole lot of fears, the S&P 500 fell 2.1% on Thursday and the Nasdaq Composite fell 2.8%.

For individuals with 401(k) savings, the unstable stock market means developing a plan to cut your losses as much as possible. According to a recent AARP blog post by financial writer John Waggoner, part of your personal plan depends on your financial status.

Younger investors have plenty of time to weather the storm, he said, noting that the typical bear market rebounds in three and a half years.

If you're 50 and want to retire in 15 years, maintain saving in your 401(k) or IRA as you have. "Regular investors seek to buy stock at reduced prices. That's good: Buy low, sell high.

Waggoner advises against withdrawing money from stock funds in a bear market if you are already retired, unless there is no other option.

You won't make enough money to make up for your losses, Waggoner said. And if you remove 4% while your stock fund is down 15%, your account will be down 19%. Withdrawals only worsen the situation in a bear market.

Trying to timing the market by selling your stocks now and then trying to predict when things will bottom out so you can buy again is another thing you should avoid.

Trying to timing the market by selling your stocks now and then trying to predict when things will bottom out so you can buy again is another thing you should avoid.

According to Taylor Wilson, a certified financial planner and the head of Greenstone Wealth Management in Forest City, Iowa, "it's not about timing the market; it's about time in the market."

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