The Best Way to Make Your Retirement Portfolio Crash-Resilient

The U.S. economy could slip into a recession at any time, so creating a crash-resilient retirement is more important than ever.

That thought terrifies most investors. Rule #1 investors, though, know that a recession is a golden opportunity to purchase great companies at bargain prices.

As a savvy investor, you should prepare yourself now by thinking about what you will do with your retirement accounts during a recession.

The following advice will help you get ready to take advantage of the unique opportunities a recession presents.

Should You Lower Your Contribution to Your 401(k)?

Any time -- recession or not -- is a good time to lower your contribution to your 401(k) if you are contributing more than your employer matches.

Here's why:

401(k)s charge high fees for administration and management, which eat into your nest egg. They over-diversify, which limits the potential growth of your portfolio.

Also, they take away your freedom of choice. 401(k)s typically restrict your options to ETFs, mutual funds, and money market accounts.

You miss out on the opportunity to choose investments that will be far more profitable as well as more rewarding. When you direct your own investing, you get to choose companies that share your values, instead of investing in whatever limited choices you happen to have available in your 401(k).

Despite popular belief, 401(k)s aren't so safe either. They shadow the market.

When the market goes down, 401(k)s will drop too. And when the market goes up, all you get is market performance minus the 401(k) fees -- which means your 401(k) returns will trail the overall market.

There is one situation where 401(k)s shine. That’s if your employer matches your contribution. If you get, say, a 100% match, then you will double your investment right off the bat, which is terrific.

But if you are contributing more to your 401(k) than your employer is matching, you should contribute less. Stick to the employer match, but invest anything above that in an IRA, Roth, or other self-directed retirement accounts so you can choose where your money goes.

Investing in a 401(k) is better than not investing at all. And you should take advantage of any employer matching that is available to you. Just make sure that your 401(k) is not your only investment.

No matter what investment vehicle you use, keep on contributing money to your retirement. Don’t stop during a recession. Keep on saving.

Why Staying Invested Matters: During recessions, the natural instinct is to pull back—but staying the course can actually lead to the greatest gains. Rule #1-style investors don’t try to time the bottom. Instead, they value businesses and buy when the price drops well below intrinsic value. Think of it like buying a $50 bill for $25. Even if the stock drops to $15, you can buy more and lower your average cost.

This strategy is called value cost averaging, and it allows Rule #1 investors to take advantage of volatility rather than fall victim to it.

Should You Cash Out During a Recession?

No, don’t do it.

You shouldn’t cash out of your retirement accounts until you retire. Many investors panic when the market drops, and they make crazy decisions with their money that they later regret.

Remember, you should buy low and sell high. Selling when the market is low is the exact opposite of what you should be doing.

Rule #1 investors recognize a recession as a time to buy.

But you have to buy the right companies. Don't just throw your extra money into your 401(k) if you're already getting the maximum employer match. Instead, buy companies you select yourself.

Do the research, and you will find great companies that match your values at bargain prices. That's how you get maximum returns over the long term.

If you're unsure where to begin, start by identifying businesses that:

• Are simple and understandable to you (stay within your circle of competence)

• Have a moat (competitive advantage)

• Are run by CEOs with integrity and talent

• Are available at a significant margin of safety (price well below intrinsic value)

For example, during past downturns, Rule #1 students identified companies like Apple and Costco trading at deep discounts. Over a decade, one of our Singapore workshop portfolios returned 32% CAGR by applying this exact approach.

Don’t Look at Your Retirement Account Balances During a Recession

When most people hear that the stock market took a dip, they get nervous. They pull up their retirement accounts and stare at their balances.

Don’t do this! You will just make yourself crazy for no reason.

When the market is going down is the worst time to check your balance. You might panic and sell, which would be a huge mistake.

That’s the last thing you should be doing. If you are investing for the long term, this short-term fluctuation won’t matter. Instead of selling, you should be buying great companies.

Be smart with your investments.

And remember: a downturn isn’t the time to sit still—it’s the time to get educated. Use this period to build your investing skillset so that you’re not dependent on over-diversified funds with fees you can’t control.

Should You Invest More in Your Retirement Accounts During a Recession?

Yes.

A recession or a market crash provides a fantastic opportunity to invest more money into individual companies.

You can buy wonderful companies at bargain prices.

Look for companies that you understand and that align with your values, companies with a strong competitive advantage and trustworthy management that are priced at a deep discount to their actual value.

These are recession-proof companies that will still be around 10 years from now, long after any short-term crash.

Conclusion

You don’t need to fear recessions—if you're prepared, they can become the most profitable periods of your investing life.

During a recession, consider putting any extra money into an IRA or other self-directed retirement account.

This is an opportunity to buy amazing companies on sale. You will end up much better off in the long run by choosing your own companies instead of putting everything into a 401(k).

Do you know how much you need to retire? I've got a free retirement calculator so you can find your number.

**Editor’s Note (Updated April 2025): This article was originally published in 2020 and has been significantly updated in 2025 to reflect current examples and Rule #1 investing insights.