How to Protect Your Nest Egg From a Market Crash

By on May 17, 2019

It’s only a matter of time to the next downturn, so prepare now. The current bull market now 10 years old, leaving many of us believe we are past due for a major market crash. With Americans heavily invested in stocks through 401(k) plans, they are vulnerable to losing a large portion of their retirement savings when that happens.

Since 1929 we’ve had three market crashes where the Dow took between 16 and 25 years to recover to pre-crash levels. Even after suffering through the rollercoaster ups and downs of the stock market, the average investor in equity mutual funds has gotten only a 3.88 percent annual return over the last two decades, the DALBAR 2019 Quantitative Analysis of Investor Behavior finds.

Given these factors, now is a good time to do some serious soul searching to determine if you have too much of your retirement savings at risk in the market.

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Market volatility is a fact of life. If you have money in the market, there is no avoiding the ups and downs. We had two market corrections of 10 percent or more just last year.

In fact, 2018 was the worst year for stocks since the financial crisis, with major stock indexes posting their worst December since the Great Depression. By one estimate, the average 401(k) owner completely invested in U.S. stocks lost $8,733 between September and early December of last year. Still, the “experts” say sit tight, don’t panic, and everything will be fine. What if they are wrong?

Wall Street is plagued by the prospects of mounting inflation, slowing growth, debilitating trade wars, and interest rate hikes. Goldman Sachs’ bear-market risk indicator rose to its highest level in almost 50 years. Morgan Stanley announced that we’re in a rolling bear market that could cripple stocks indefinitely. And JP Morgan Chase warned that the liquidity binge of the last ten years has set the stage for the next financial crisis.

Since 2000, Wall Street has lost more than 49 percent of the average investor’s savings ­– twice. If it happens again, the results will be a big setback for many workers, but catastrophic for those nearing retirement.

Fortunately, there are steps you can take to take responsibility for your financial future before it is too late. Here are five ways to help protect your nest-egg from market crashes, and to make sure you have enough money to live as you want through your golden years:

Don’t put all your eggs in one risky basket, such as 401(k) and IRA plans that are subject to high risk and volatility. If you can’t determine the minimum guaranteed value of your savings at the time you plan to retire, you’re gambling.

Don’t rely too much on Social Security or a public pension fund. Social Security’s combined asset reserves are projected to become depleted in 2035 and able to pay only 80 percent of benefits at that time, according to the latest report from the fund’s trustees. Many state pension plans are also underfunded.

Calculate conservatively to determine how much you will need to save for retirement. Many experts recommend counting on withdrawing only 2.8 percent over a typical 30-year retirement period. To avoid outliving your money, you should also assume you’ll live to at least age 95 because there’s a good chance you or your partner will.

Save more in assets that are guaranteed, safe, and liquid. Make sure you have a substantial portion of your savings in assets that will not lose value when markets tumble, and that allows you to access your money when you need it without penalties.

Make sure you can answer yes to these questions before you commit your money to any financial vehicle or product:

  • Will this advice or vehicle give me peace of mind and let me sleep at night?
  • Will it help me get where I want to go without taking unnecessary risks?
  • Will it allow me to be in charge of my money?

These steps are the key to building true financial self-sufficiency. Following them will give you peace of mind to know you will be able to meet your needs, no matter what happens with financial markets.

Pamela Yellen is the founder of Bank On Yourself, a financial investigator, and the author of two New York Times best-selling books, including her latest, “The Bank On Yourself Revolution: Fire Your Banker, Bypass Wall Street, and Take Control of Your Own Financial Future.” Pamela investigated more than 450 financial strategies seeking an alternative to the risk and volatility of stocks and other investments, which led her to a time-tested, predictable method of growing wealth now used by more than 500,000 Americans.


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How to Protect Your Nest Egg From a Market Crash