How to Manage Your 401(k) in a Bear Market

16 July 2025

If you’ve opened your 401(k) statement during a downturn and felt your stomach drop, you’re not alone. Watching your retirement savings dip in a bear market is about as fun as walking barefoot on Lego bricks. But before you panic and start moving everything to cash, take a deep breath. Markets have cycles — ups, downs, and everything in between. How you respond during the bad times can make a massive difference in where you end up financially.

In this guide, we’ll chat about how to manage your 401(k) in a bear market, without freaking out or making impulsive decisions. Think of this as your survival kit — practical strategies, mindset shifts, and a few key principles that will help you navigate the rough waters.

🐻 First, What’s a Bear Market Anyway?

Before we dive in, let’s get on the same page. A bear market happens when the stock market drops 20% or more from recent highs. It’s often fueled by fear, economic downturns, or global events (hello, pandemic). These markets can last months or even years — but here's the silver lining: they’re also normal.

Historically, bear markets happen every few years. You can think of them like a financial winter — cold, harsh, and uncomfortable, but a necessary part of the investing seasons.

❄️ Don’t Hit the Panic Button

First thing's first: do not sell everything. This is where many folks go wrong. The instinct to "cut your losses" might feel safe, but it's often the worst move for your 401(k).

Selling during a bear market locks in your losses. It's like digging up a seed because it hasn't grown yet — you’re not giving it a chance to sprout. Markets recover. Historically, they always have. If you cash out during the dip, you risk missing the rebound.

What should you do instead? Stay the course. Let the storm pass. That might sound overly simple, but it’s one of the most powerful strategies in long-term investing.

📉 Understand the Power of Dollar-Cost Averaging

This is one of the best hidden strategies in your 401(k) toolbox, and chances are, you're already doing it without realizing.

Dollar-cost averaging means investing a fixed amount on a regular schedule — like your bi-weekly 401(k) contributions. When markets are down, your set contribution buys more shares. It’s like stocks are on sale.

Over time, this strategy smooths out the cost of your investments. You’re not trying to time the market (which is nearly impossible). Instead, you’re building consistently, like a bricklayer stacking rows — rain or shine.

So, if you're thinking, "Should I pause my contributions during a bear market?" the answer is: probably not. In fact, you might consider the opposite.

💰 Consider Increasing Your Contributions (If You Can)

Bear markets can actually be a gift in disguise — a chance to buy investments at a discount. Upping your 401(k) contribution while prices are low could pay off big when the market rebounds.

Think of it like Black Friday for stocks. You wouldn’t skip the sale if you knew things would be more expensive next year, right?

Of course, only increase contributions if it fits your budget. Don’t stretch yourself thin. But even a 1% bump in your contribution rate can make a huge difference over time, thanks to the magic of compounding.

🧠 Revisit Your Asset Allocation

Now’s a great time to take a look under the hood of your 401(k). Are you're invested in a mix that matches your age, risk tolerance, and retirement timeline?

Asset allocation — how you divvy up your money between stocks, bonds, and other investments — is crucial. During a bear market, this balance can either cushion the blow or exaggerate the pain.

If you're younger, it’s okay (and even smart) to carry more stocks. You have time to ride out the bumps. But if retirement is just around the corner, you might want more bonds or conservative investments.

Not sure where to start? Many 401(k)s offer target-date funds — these automatically adjust your mix as you get older. They're not perfect, but for a lot of folks, they’re a solid “set it and forget it” option.

🔁 Rebalance, But Don’t Overreact

Rebalancing means adjusting your investments back to your original targets. Let’s say you wanted 70% stocks, 30% bonds. After a market drop, that might skew to 60/40 because stocks lost more value.

Rebalancing brings you back to your plan. It might even mean selling some bonds and buying more stocks — yep, buying when things are down. It takes guts, but it's smart.

But don’t overdo it. You don’t need to rebalance every week. Maybe once or twice a year. Too much tinkering can lead to emotional decisions, and that's what we're trying to avoid in a bear market.

🧾 Review Your 401(k) Fees

When markets are rocky, every penny counts. It’s a good time to check what you're paying in management fees inside your 401(k). Some actively managed funds charge high fees that eat into your growth — especially when returns are already low.

Look for low-cost index funds — they typically have smaller fees and still offer solid long-term performance. Think of it like switching to a fuel-efficient car when gas prices spike.

You don’t need to become a financial analyst. Just log into your 401(k) portal and peek at the expense ratios of your funds. Anything over 1% might be worth a second look.

🛑 Avoid Emotional Decisions

Let’s get real for a second. Watching your account drop is emotional. It feels like your dreams are unraveling. But emotion and investing rarely mix well. In fact, emotion-based decisions are one of the biggest reasons people miss their financial goals.

So what’s the solution? Create a plan — and stick to it. Write down the reasons you're investing, your long-term goals, and your risk tolerance. This becomes your North Star during turbulent times.

Whenever panic creeps in, revisit your plan. Ask yourself: “Has my timeline changed? Has my risk tolerance changed? Or am I just reacting emotionally?”

Spoiler alert: 9 out of 10 times, it’s the last one.

📆 Focus on the Long Game

If retirement is still 10, 20, or even 30 years away, then what’s happening today matters way less than it seems. Markets go up. Markets go down. But over time, they tend to go up more than they go down.

Think of your 401(k) like planting a tree. You don’t dig it up every time there's a storm. You water it, give it sunlight, and trust that, in time, it’ll grow strong.

It’s not about timing the market. It’s about time in the market.

👨‍💼 Talk to a Financial Advisor (Or Use Your 401(k)’s Tools)

If all this feels overwhelming, that’s okay. Most 401(k) plans offer some level of financial guidance or tools to help you choose investments. Don’t let pride keep you from asking questions.

A good advisor can help you figure out your risk level, check if you're on track, and keep you from making decisions you'll regret. If your employer offers access to a financial planner, use it. It’s probably included in your benefits.

✅ What You Should Be Doing Right Now

Let’s wrap this up with a simple checklist — a game plan to help you feel calm, confident, and in control of your 401(k) during a bear market.

- ✅ Keep contributing (don’t pause unless you absolutely have to)
- ✅ Check your asset allocation — rebalance if needed
- ✅ Consider increasing your contribution (even 1% helps)
- ✅ Review your fund fees — look for lower-cost options
- ✅ Don’t log in every day and panic-watch your balance
- ✅ Write down your investment plan and goals
- ✅ Talk to a financial advisor if you need help

🎯 Final Thoughts: Stay Calm and Keep Investing

Managing your 401(k) in a bear market is tough, no doubt about it. But it’s also one of the best times to show discipline. Remember, the wealthiest investors aren’t always the smartest — they’re just the ones who stay the course.

Bear markets are scary, but they’re also full of opportunity. If you keep your cool, stick to your plan, and maybe even get a little strategic, you’ll come out stronger on the other side.

Just keep watering that financial tree.