Market volatility: 3 actions for plan sponsors

BlackRock |Mar 12, 2020

Volatility is a fact of investing life – but market turmoil on the scale we’ve seen this week can raise concerns among even the most battle-hardened investors about long-term market trends and impacts.

The BlackRock Investment institute has provided useful perspective in Market plunge: This is not 2008, but we want to share three action steps that plan sponsors may want to consider:

Action 1: Speak to your participants!

It’s a good bet that participants are worried – especially those without a great deal of investment experience. Fears about the coronavirus, which is at least partly responsible for the market jitters, may compound their uncertainty.

Reaching out proactively may help prevent nervous participants from making damaging mistakes by pulling out of the market. Per the Alight Solutions 401(k) Index, the final week of this past February was one of the busiest five-day stretches in the 20-plus year history of the index.

Here are talking points you may want to consider:

  1. Reassure participants invested in a target date fund or similar qualified default investment alternative (QDIA) that it is designed for the long-term with periods of market volatility in mind.
  2. Remind participants in target date funds that they are designed to provide age-appropriate exposure, with reduced exposure to equities for older and retired participants.
  3. Pulling out of the market and missing a potential rebound can be costly. There are a number of ways to illustrate this, but the following chart makes a good case.

Missing top-performing days can hurt your return
Compares hypothetical return of $100,000 invested in the S&P 500 Index over the 20 year period from (3/1/2000 to 2/28/2020) against the return if the 10 and 25 top-performing days were missed.

Potential rebound can be costly


Past performance does not guarantee or indicate future results. Source: BlackRock, Bloomberg, Morningstar as of 2/28/2020

The following table illustrate that performance after selloffs is often very strong:

12-month performance following major declines

S&P 500 biggest declinesBlack Monday 8/25/87-12/4/87Gulf War 7/16/90-10/11/90Asia Crisis 7/17/98-9/31/98Tech Bubble 3/27/00-10/9/02Financial Crisis 10/9/07 -3/9/09US Credit Downgrade 3/10/11–10/3/11Trade War 10/3/18-12/24/18
% decline -33.5% -19.9% -19.3% -49.0% -56.8% -19.0% -19.6%
Next 12 months +21.4% +29.1% +37.9% +33.7% +68.6% +32.0% +37.1%

Source: Morningstar as of 2/28/20. Returns are principal only not including dividends. U.S. stocks represented by the S&P 500 Index. Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. You can’t invest directly in an index.

Action 2: Keep the whole lifecycle in view

Short-term market events can block our vision of the long term. The purpose of a defined contribution plan may remain the same, regardless of a participant's age: to grow their savings enough so that it may help support their lifestyle after the paycheck stop.

Yet while the goal may be the same for all participants, their needs may depend on where they are in their career. Participants in, or near, retirement want market growth to help fund potentially decades of retirement, but they also want to mitigate losses that could derail their retirement plans or spending. Younger participants have more time to recover from volatility – and more time to contribute savings.

LifePath target date funds are designed with a heterogeneous participant population in mind. The chart for the LifePath Index Mutual Fund shows year-to-date and five-year performance for each target year. And while there is no guarantee that this will always be the case, so far this year the objective of mitigating the downside for retirees has performed as designed:

LifePath Index Mutual Fund Performance

LifePath Index Mutual Fund Performance


Source: Morningstar Direct, as of March 9, 2020. Data shown is for the BlackRock LifePath Index Mutual Fund series – K share class. Returns of less than one year are unannualized. Returns are based on monthly net-of-fee returns. Performance data quoted represents past performance and does not guarantee future results. See below for standardized performance data.

Action 3: Respond to volatility before it happens

Whatever your view on the current volatility, we expect participants to face bulls and bears throughout their career and retirement. We can’t say when, but we will see severe volatility again. Now is the time to prepare for the next round by considering the following questions:

  • How well do you know your participants?
    How they respond to volatility may be more important than the volatility itself. Take a look at asset flows to get a sense of how participants reacted. If necessary, develop a participant communication protocol so that you’re ready the next time.
  • Do you know how your participants are invested?
    A well-diversified, age-appropriate QDIA can only benefit participants who are invested in them. Allocations for many participants may have greater risk exposure than you may assume.
  • How will your portfolios hold up?
    Stress test your current QDIA or target date fund to various market scenarios. Pay particular attention to fixed-income exposures: are they providing ballast for equities, or does credit exposure compound equity-like risk?
  • Have you developed a long-range forecast?
    Either independently or by working with your provider, explore long-term market expectations and consider their impact on participant retirement outcomes. BlackRock plan design analytics can help you review changes in the investment allocation or plan design enhancements to help identify potential improvements or exposures.

Speak to your BlackRock representative if you want to explore any of these issues.

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Group/InvestmentTickerInception DateYTD1Y3 Year5 YearSince Inception
BlackRock LifePath® Index Retire K LIRKX 5/31/2011 -2.76% 7.49% 5.68% 4.79% 5.28%
BlackRock LifePath® Index 2025 K LIBKX 5/31/2011 -5.19% 6.26% 6.03% 5.40% 6.12%
BlackRock LifePath® Index 2030 K LINKX 5/31/2011 -7.14% 5.00% 6.05% 5.58% 6.40%
BlackRock LifePath® Index 2035 K LIJKX 5/31/2011 -8.88% 3.99% 6.04% 5.78% 6.64%
BlackRock LifePath® Index 2040 K LIKKX 5/31/2011 -10.52% 2.89% 6.04% 5.91% 6.86%
BlackRock LifePath® Index 2045 K LIHKX 5/31/2011 -11.62% 2.17% 6.01% 5.99% 7.01%
BlackRock LifePath® Index 2050 K LIPKX 5/31/2011 -12.08% 1.80% 5.95% 5.96% 7.12%
BlackRock LifePath® Index 2055 K LIVKX 5/31/2011 -12.16% 1.78% 5.94% 5.98% 7.25%
BlackRock LifePath® Index 2060 K LIZKX 2/29/2016 -12.14% 1.82% 5.94% - 9.53%
BlackRock LifePath® Index 2065 K LIWKX 10/30/2019 -11.55% - - - -16.93%

The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Refer to to obtain current month-end performance. Investment returns reflect total fund operating expenses, net of all fees, waivers and/or expense reimbursement. Total annual fund operating expenses, and net annual fund operating expenses including investment related expenses (total / net) as stated in the Funds’ most recent prospectus are: Retirement – 0.14% / 0.09%, 2025 - 0.15% / 0.09%, 2030 - 0.15% / 0.09%, 2035 - 0.16% / 0.09%, 2040 - 0.16% / 0.09%, 2045 - 0.16% / 0.09%, 2050 - 0.16% / 0.09%, 2055 - 0.16% / 0.09%. The Funds’ net annual operating expenses take into account fees which BlackRock has agreed to waive voluntarily. BlackRock may discontinue these voluntarily waivers at any time without notice.