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The Majority of 401(k) Investors Made This Smart Choice Amidst Coronavirus Market Volatility

By Christy Bieber - Updated May 11, 2020 at 1:04PM

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Coronavirus and the resulting great lockdown has caused major disruptions to the world economy.

The stock market has, unsurprisingly, reacted to the turmoil. In fact, panic selling repeatedly triggered circuit breakers in March that paused trading in hopes of calming the market. But thanks to a rally starting at the end of the month, the S&P soared by the end of April

Amidst all this volatility, most people with retirement investments did the smartest thing they could do with their long-term investment accounts.  Here's what they did. 

Piggy bank with colorful 401(k) letters next to it.

Image source: Getty Images.

Most investors stayed the course -- or increased their investments

According to research from Fidelity, the average 401(k) contribution was unchanged during the first quarter of 2020, even amid the coronavirus market downturn. The typical retirement saver continued to contribute about 8.9% of income, same as the last quarter of 2019. 

While continuing to invest at a steady clip is smart during times of turmoil, some savers made an even better choice -- they upped the amount they were putting into investment accounts.

In fact, Fidelity shows 15% of 401(k) savers increased their contributions. And the number of people opening IRAs also hit a new record, with 36% more new IRAs opened in the first quarter of 2020 compared with the same time period in 2019.

Why sticking with the status quo -- or taking advantage of a volatile market -- can be the smartest option

Investments in a 401(k) and IRA are long-term investments for most people. When investing over the long term, panic selling in response to bad economic news almost never makes sense. That's because you almost always react too late, cutting back after losses already occurred.

If you're hoping to earn the average return the market has historically provided over time (about 7%), you'll want to do what most people did -- stay the course and not make any changes during uncertain economic times (as long as you have a sound investment strategy in the first place). 

But if you want to try to beat the market, you'd likely be smart to follow the lead of those investors who upped their stake as chaos reigned. 

Sure, you might find yourself with your investments declining in the short term if the market hasn't hit rock bottom when you buy in. But if you buy high-quality stocks, you'll get discounted shares by buying in turbulent times. The bargain shares will have decades to grow, so any short-term losses won't really matter as you won't miss any of the inevitable market recovery and your high-quality investments will work for you for a long time to come. 

It's not too late to make the right choice with your own retirement investments

If you cut back on your retirement investing when the market volatility started and you have the money to do so, you can still step up your contributions to get back to where you were. And, whether you made changes or not, consider increasing the amount you're putting into the market as the volatility will likely continue for a while, and there's a strong possibility a COVID-19 recession will stretch on for months. 

Just remember: You don't want to panic and cut back if things look like they're going south, either now or in the future. Be like the majority of investors whom Fidelity found stayed the course. Or, if you really want to maximize your chances of earning a great return, look at this time -- and any future downturns -- as a buying opportunity. You'll likely be very glad you did. 

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