Should I Cash Out 90% of My 401(k) Ahead of a Potential Recession?

These days, a lot of people are worried about an impending recession. Tariff policies could drive the cost of goods up in a very big way, leading to a broad decline in consumer spending.

Recessions are scary for working people who worry about losing their jobs. But they’re not exactly a picnic for near-retirees.

If a recession hits, it could take the stock market down with it. That could cause the value of your 401(k) to tank.

So if your 401(k) is heavily invested in stocks, you’re on the cusp of retirement, and you think a recession is coming, it could make sense to cash out a good chunk of it. But if you’re not in that situation, you may want to think twice before being prematurely reactive to an economic event that may not even happen.

Be careful with trying to time the market

In this Reddit post, we have someone who’s brought up the subject of cashing out a 401(k) ahead of a recession. Since 90% of their 401(k) is in securities, they’re wondering if they should convert a large potion to cash and bonds.

My answer as to what they should do depends on their age and where they are in terms of their career, which they don’t state. But based on what they’re looking to do, it seems to me that we don’t have a skittish near-retiree here. Rather, we have someone who’s trying to time the market. And that has me worried.

What the poster has suggested doing is selling off securities in their 401(k), capturing the gains, holding cash until the market crashes, and then rebuying those securities once they’re cheaper. It might seem like a good strategy in theory, but it’s one that may not work.

Studies have shown over and over again that timing the market is a dangerous move. And if this poster gets their timing wrong, they could lose out big time.

I’m also not a fan of making investing moves out of fear, whether it’s fear of a recession, inflation, or anything else. Instead, there’s a long-term strategy I like to employ.

Consistency and patience win the race

When it comes to building wealth in the stock market, I’ve long been a firm believer that the formula goes like this:

• Invest in quality assets on a consistent basis
• Hold those assets through good times and bad
• Eventually, sell those assets at what will hopefully be a large gain once the time is right, such as when you’re retiring

And to be clear, I would never tell someone retiring to sell all of their stocks ahead of retirement. Rather, at that point, it’s best to shift over to a larger percentage of stable investments, like bonds.

But all told, I don’t think the poster here has a winning plan. There are just too many things that could go wrong.

A recession may not hit at all, or it may hit at a different time than when the poster expects it to. So unless the poster has a crystal ball, this plan screams “too risky” to me.

What I’d love to see them do is run their strategy by a financial advisor and get their input. Having that conversation could potentially spare them a world of financial pain.

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