Why You Shouldn’t Hit Pause on Your 401(k)

Investors are understandably shaken by this year’s market turmoil.

First, the market went through a seemingly normal round of profit-taking and recalibration during the first quarter of 2025, leading to losses of about 5% for the Morningstar US Market Index. The losses deepened after the sweeping round of tariffs announced in early April, followed by retaliatory tariffs from major trading partners, such as China, and then a temporary pause on tariffs announced by President Donald Trump. While the markets have continued to ricochet from day to day, where things go from here is anyone’s guess.

Amid this volatile backdrop, employees saving for retirement through a tax-deferred savings plan such as a 401(k) might feel like they’re throwing good money after bad. I’ve heard many comments from investors wondering if they should hit the pause button on contributions until the market settles down.

This approach sounds tempting. If you’re planning to go for a walk in rainy weather, the thinking goes, why not at least wait until the most torrential rain subsides? But the weather analogy only goes so far.

With investing, it’s better to stick with it instead of waiting for conditions to improve.

Running the Numbers

To test how a “wait and see” approach would have fared compared with continuing to invest, I looked at four different market downturns: the early 2000s dot-com bubble, the 2008 market downturn, the coronavirus-driven decline in early 2020, and the 2022 bear market.

In each case, I looked at results under two different scenarios: An investor who started saving $500 per month and continued to do so, and another investor who stopped saving until the market started to improve. I assumed all contributions were invested in stocks. (In the first four cases below, I assumed that contributions were only paused during the bear market in question and then resumed for all of the periods that followed.)

Case 1: March 2000–October 2002

After an exuberant bull market during most of the 1990s, the new decade started on a brutal note. As previously high-flying technology stocks crashed back to earth, stocks suffered cumulative losses of about 33% from early 2000 through October 2002, and tech-heavy indexes such as the Nasdaq-100 shed more than three fourths of their value.

An investor who started investing $500 per month in March 2000 and kept doing that even throughout the turmoil early in the decade would have ended up with about $700,000 as of March 31, 2025. The “wait and see” investor, on the other hand, would have finished with about $573,000.

Case 2: October 2007–February 2009

The market downturn in 2008 amid the global financial crisis and recession was the second-worst calendar year for equity investors in recent market history, with the market’s 37% drop surpassed only by the 43% downturn in 1931. An investor who started investing $500 per month in October 2007 and continued making consistent monthly investments would have ended up with about $360,000 as of March 31, 2025—even after enduring losses in early 2020 and full-year 2022. An investor who skipped out on making contributions until March 2009 would have ended up with about $307,000 as of the same date.

Case 3: February and March 2020

The covid-19-driven market downturn in early 2020 was unusually swift and severe. Broad stock market indexes shed about 34% of their value from Feb. 19, 2020, until the market started rebounding roughly a month later. After this sharp downturn, the rebound was even more impressive, with stocks posting gains of 28.7% during 2021. As a result, the “keep buying” investor would have still ended up slightly ahead by March 2025, even after suffering through market downturns in 2022 and early 2025.

Case 4: January 2022–October 2022

The 2022 market reversal was a sharp reaction to the unexpected spike in inflation that started in 2021, followed by a series of aggressive interest-rate hikes by the US Federal Reserve. As a result, the Morningstar US Market Index lost about 19% from January through October of that year. But thanks to the market’s dramatic rebound in 2023 and 2024, the “keep buying” investor would have ended up about $7,000 ahead by March 2025. Even though contributions made during 2022 didn’t initially grow, they still added up—meaning there was more money in the account to benefit when the market reversed course.

Case 5: January 2000–March 2025

The differences in dollar amounts are even more dramatic over a longer period. For this analysis, I assumed that an investor started making contributions of $500 per month in January 2000, paused the contributions during each of the four downturns analyzed above, and then resumed contributions after the market had bottomed out. But even in this seemingly ideal scenario, consistent contributions won out by a large margin. The consistent 401(k) contributor ended up nearly $200,000 ahead of the stop-and-start investor. The reason? Continuing to make contributions means there were more dollars around to benefit when the market rebounded, while hitting pause on contributions means the opposite. And the impact of this compounds over time. The “wait and see” investor would have skipped out on 61 months’ worth of contributions for a total of $30,500 but ended up with a balance that was about $184,000 lower than the “keep buying” approach.

The first four examples above assume a portfolio that started at the beginning of a bear market.

In the last case, investors who already had an established portfolio balance before a market downturn would have still suffered some losses on paper, but the same principle applies: Putting contributions on hold while a 401(k) is losing money leaves you with fewer dollars that can benefit from an eventual rebound.

Why Retirement Savers Shouldn’t Give Up

The examples above make a pretty strong case for just sticking with the plan, even during a bear market. But this analysis probably overstates the results for “wait and see” investors because it assumes that investors somehow knew ahead of time when the market was going to start recovering.

In reality, it’s impossible to predict when the turnaround will happen. Bad news usually isn’t unrelenting, and even during the worst bear markets, there are sometimes days, weeks, or months with positive returns. In July 2022, for example, the market posted gains of 9.4%, but the rally was short-lived, with losses following soon after.

Not only is it tough to get the timing right for a market recovery, but keeping money on the sidelines means betting against the odds. Statistically speaking, the market goes up more than it goes down. Watching a 401(k) lose money isn’t fun to live through, but things eventually turn around.

Finally, don’t forget about the tax breaks from contributing to a 401(k). Contributions to a tax-deferred retirement plan reduce taxable income, which can help lessen the sting from negative returns. And it always makes sense to contribute at least enough to take advantage of any company match, even when your 401(k) is losing money in the short term.