The 2008-2009 market downturn was the worst fall in the memory of most investors. When they opened their 401(k) statements in the first quarter of 2009, many investors panicked. They committed the second-worst sin an investor can commit: They sold low. (The worst sin is buying high.)

Are we headed for a repetition of this history? We are about to find out (see “4th Quarter Fallout: Mistakes 401k Participant Might Make After Reading Their Latest Statement,” FiduciaryNews.com, January 29, 2019).

This might be hard to believe, but if we are to avoid the problems of panic, we need to learn the lessons of 2008-2009.

Ten years ago, when participants opened their statements, they were shocked. Their tidy nest eggs had lost nearly half their worth in roughly a year. In letting their emotion take control, they instinctively sold in the first quarter of 2009 – just as the market was reaching its lowest point.

What was the consequence of succumbing to fear? They lost out on participating in the gigantic bull market bounce that began in March of 2009. As a result, it took them longer to recover their losses.

Indeed, some may never have recovered.

What folks avoided this mistake? The ones that didn't open their statements.

They saw the headlines. They knew what was coming. Rather than confronting reality, they instead decided to “go ostrich.” They chose to bury their heads in the sand. Sure, they received their statements, but they never opened them.

That may sound like escapism. Yet, it might have been the correct decision. By ignoring reality, they never confirmed their worst fears. As a result, they didn't experience that same raw emotion that caused their peers to sell in panic.

They kept their retirement funds in the market and rode the eventual rebound to greater heights than they ever experienced.

It's probably not ideal to ignore reality. It's better to prepare for it. And by “prepare for it” I mean preparing for multiple scenarios. You don't have to know which scenario will happen. All you need to know is what to do when it does.

Think of it as if you're a quarterback running the option. You don't know what the defensive end will do. Your coach will teach you, however, what to do given the two different actions that defensive end can take.

In scenario one, the defensive end angles out to contain your ability to run around him, in which case you give the ball to the tailback. In scenario two, the defensive end angles in towards you, in which case you keep the ball yourself and speed around the end.

You don't know which scenario the future will bring, but you know exactly what to do once the future reveals the actual scenario to you. And you act accordingly.

Wouldn't it be great if retirement plan savers were just as prepared for the future as option quarterbacks? And who is there to coach those savers on what to do given any variety of scenarios?

Without financial professionals coaching them, perhaps it's best if retirement savers “go ostrich” this quarter.

Would rank-and-file 401(k) retirement savers benefit from working with an advisor?

Fee compression: Bad for retirement savers? — Carosa

Instant Insights /

Time for retirement savers to 'go ostrich'? – Carosa

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