Recently, investors have faced unprecedented times as the impact of COVID-19 on the economy continues. After a strong decade for US equity markets, it comes as no surprise that the market’s recent drop and continued volatility is unnerving and downright scary for many. Nevertheless, a key concept to investing in a retirement plan is to not allow fear to impact decision making that may hurt the long-term goal.

Under the CARES Act recently passed into legislation on March 27, rules allowing access to workers’ assets held in employers’ retirement plan benefit programs were eased and the financial impact of taking a withdrawal was lessened by the waiver of the 10% early withdrawal penalty for those under age 59½. While not everyone will be able to avoid withdrawing from their retirement savings during this time due to job loss or loss of income, it is important to reserve utilizing this option unless all other resources have been exhausted. Investors may fail to recognize the long-term impact of locking in losses on paper by selling equities at a low price and missing future gains.

While it is clear these are unprecedented times, it is also important to remember that market volatility is normal, and previous significant market declines due to economic disruptions have always recovered and rebounded even higher. Research proves that missing out on the best performing days of the market regardless of the bad days can hurt long term returns. Not only does a withdrawal lock in the price of the investment on paper, but it will also include the loss of years of compound interest that will not be there for its intended use as income in retirement years.

Another common action that many investors take during periods of volatility is to sell out of their equity investments: whether it be stocks, individual mutual funds or target-date funds, for a purchase into a cash investment (i.e. a money market fund). The same concept applies when making a sale as when making a withdrawal. The sale of the equity investment locks in the price of the investment and any losses at that point are captured on paper. While the mindset of the investor is to protect their savings and avoid further losses, the outcome is often missed returns and compound interest resulting in a lesser total balance of savings at retirement age. Instead, investors should design their portfolios based on their risk tolerance and time horizon to retirement. Investors entering into their retirement years and beyond should typically more heavily allocated to less risk-bearing investments such as bonds and therefore should not be as affected by volatility.

Like individual investors, employers also face fears, and oftentimes difficult financial decisions during significant economic disruptions. Some employers may choose to pause company-matching contributions due to their larger financial needs as a result. This can often have an effect on how much employees then choose to contribute to their employer’s retirement plan benefit. Employees may see their employer’s drop or stop in matching contributions as a sign they should do the same, but in fact, if the employee still has a job and is not worried about their cash flow, the more they contribute when the markets are down, the better. The investor is buying their investment at a lower share price during times of volatility. Employees who lower or stop contributing all together won’t know when the market will rebound, or their employer will resume making matching contributions, and could end up buying at a higher price and missing the potential gains of the rebound, once again resulting in a lower balance come retirement age.

So in short, while we recognize the guidance to stay disciplined to your long-term investment strategy can seem counterintuitive and over-simplified during times like these, history shows those who favor discipline come out ahead in the end. Asset allocation and diversification historically beat market timing in dealing with volatility and continues to be the most reliable course of action for growing and preserving retirement savings throughout your years as an investor.