To commemorate the 30th anniversary of the stock market crash of October 30, 1987, I recently filmed an interview with PlanAdviser reflecting on that historic event. We were approaching the end of last year and it was looking as though 2017 would be only the second year since 1980 without a greater than 5% market correction. It seemed like an opportune time to remind 401(k) plan participants of the principles of persistence and courage in investing, ahead of the correction that was all but inevitable.

So yes, it was a few months late yet oh-so-predictable when the Dow Jones Industrial Average set a new record for daily point loss (although not percentage loss), declining more than 1,000 points on both February 5 and 8. Perhaps also predictable were the reports that 401(k) trading activity was almost 12 times above average on February 5, a day when the Dow lost 1,175 points and was down 4.60%.

While we may not film again, these large market swings underscore the need for us to stay in front of retirement plan participants. Yes, they have probably heard that volatility is part of investing, and have likely been advised about sticking with their investment plans. But it’s hard not to panic and resist the urge to sell when you watch your account lose 5%, 10% or more of its value.

That 508-point market drop 30 years ago was just as panic-inducing, and we know now that U.S. stocks went on to post positive returns for 1987. However, there are two key differences between then and now to keep in mind.

Back in 1987, 401(k) plans were only offered by very large companies. Being responsible for managing your own retirement assets was not yet the norm.1 Fast forward to 2018 and not only are there more than 65 million active 401(k) participants, according to the Investment Company Institute (ICI), but many of these participants were automatically enrolled, most likely into a target date fund (TDF) based solely on their date of birth.

"Automatic" means just that—there is no opportunity to gauge the risk tolerance of participants in order to select the most appropriate investment strategy. And while I believe the benefits of automatic 401(k) plan enrollment tend to outweigh the drawbacks, here’s something to consider: younger or new participants may have never experienced extreme market volatility. These younger participants in particular were likely defaulted into a TDF vintage that has equity exposure of 85% or more. In addition, research shows that Millennial investors are cautious about risk and tend to value capital preservation over growth.

Focusing on Younger Participants

Of course, young investors have a time horizon that allows for more investment risk, but only if they remain invested. Volatility only creates losses for those who sell, and loss-averse, auto-defaulted participants with high equity exposure will be strongly tempted to abandon their investments as they experience large daily extremes in the market.

Given the likelihood of continued market gyrations, let’s stay in front of participants with messaging that emphasizes the rewards that have historically been bestowed on investors who stayed the course with their plans. In addition, plan sponsors should consider adding more risk-personalized investment solutions such as managed accounts.


  1. ^Yours truly was “lucky” to have been covered by a defined benefit pension plan. I didn’t feel so lucky when I left my firm after four years and received a lump-sum payout of $1,983. Why pine for a pension given the nature of today’s workforce? I’ll take 401(k) any time, all the time.