Is Your 401k Recession-Proof?

Affiliate Disclosure: This post contains affiliate links to Blooom. If you signup for their services, I might earn a small commission.

One word most people don't want to hear is recession. For most investors, recessions mean a high chance of negative returns and maybe waiting several years to earn long-term gains again. One action to take now is making your 401k recession-proof as much as possible.

Recessions and market corrections can be excellent buying opportunities when good times return. But if you're near retirement, the last thing you want to see is your 401k turning into a 201k.

Although the following suggestions won't guarantee your portfolio won't produce negative returns some years, you can minimize the downside risk.

This can mean in the difference in not having to delay retirement or (as a young worker) completely exiting the market because the volatility was too much.

Diversify, Diversify, Diversify

Some 401k plans make it easier to diversify than others because they have a wide array of stock, bond and target date funds. The problem is knowing which funds to invest in and how much to invest.

Blooom is an effortless way to invest for retirement and maintain a diversified portfolio.

Each of us has different investing goals and Blooom provides personalized advice. That's right, you can talk to their money experts about retirement and non-retirement money topics.

They will analyze your 401k (and other company sponsored retirement plans or an IRA) for free.

You can also have them manage your plan for you to so you don't forget to periodically rebalance your portfolio.

Blooom offers these investing perks:

  1. Build a personalized portfolio
  2. Place trades and send withdrawals alerts
  3. Advisor access

Blooom offers a free plan analysis. An annual subscription costs $45, $120, or $250 per year. Each plan offers different perks. You will need to choose the mid-tier Standard plan or upper-tier Unlimited plan to get advisor access, automated trades and withdrawal alerts.

Whether you rebalance your portfolio or you have someone else do it, never chase historical performance or picking the lowest fund fee. Although these are two important factors, look at what the fund's investment objectives are first.


Reduce Company Stock Exposure

It can be tempting to invest heavily in your company's stock. After all, they employ the best worker ever (you!). Individual stocks are more volatile than index funds.

While the S&P 500 or Nasdaq may only budge 1 or 2% in either direction, your employer's stock can go down 15% in a single day just as quickly as it can go up.

Can you stomach a single-day 10% paper loss if your 401k is largely your company stock?

Opinions differ but hold no more than 5% to 10% of your total portfolio in company stock.

Put Your Investing on Auto-Pilot

While you shouldn't be asleep at the investing wheel, continue making your regular monthly 401k contributions.

When 2009 came, my boss told us that now was the time to double-down and put more in than usual as the market would return to its old prices in the future.

I didn't fully take his advice as I was tackling other debt payments at the time, but I made sure to invest 10% of my income into my 401k.

The temptation to stop investing means you may never start again as you always fear the next “big one.”

Believe me, I took several months off when I switched careers in 2015 and it was tough resuming normal monthly investments.

This is mostly because I had extra “spending money.” Unfortunately, money you spend most likely never returns.

Even if you only invest enough to capture the employer match, it's better than nothing.

You might consider using a 401k management tool to resist the urge to panic sell.

Ups and downs are a part of investing. As long as your portfolio mirrors your investment objectives, it's better to hold and not turn those paper losses into actual losses.

Invest Outside Your 401k

I'm a huge fan of diversifying your investment assets. One way to do this is by avoiding stock market volatility by investing in alternative assets.

A downside to these ideas is that your revenue is treated as taxable income. You might be able to invest through an IRA to avoid some of the taxes.

Launch a Side Business

One of my favorite ways is launching your own side business. You never know what the future holds and today's side hustle may replace your current full-time income.

Crowdfunded Business Loans

An alternative to bond index funds is investing in small business loans. StreetShares currently pays a 5% annual yield.

As a note of forewarning, this investment idea hasn't been “recession-tested” yet as it first became available to the general public circa 2012. But, you can invest as little as $25 for a year so it might be worth dabbling in if you have some idle cash in the bank.

Crowdfunded Real Estate

If you don't need to touch your cash for five years, crowdfunded real estate is an alternative to real estate funds.

Fundrise invests in residential and commercial property across the United States.

You don't have to deal with daily share price movements and you can earn passive income through dividends and appreciating property values.

Fundrise only requires $500 to make an initial investment, but you need to invest $1000 to unlock the advanced investing plans that let you choose more aggressive or conservative investing strategies.


Now is the time to get your 401k recession-ready. Nobody knows exactly what will happen. But preparing now can limit the downside while giving you more peace of mind. The end result? Hopefully being able to retire on schedule.

Josh founded Money Buffalo in 2015 to help people get out of debt and make smart financial decisions. He is currently a full-time personal finance writer with work featured in Forbes Advisor, Fox Business, and Credible.