How does the Dow Jones closing above 40,000 affect your 401(k)?

The recent milestone of the Dow Jones Industrial Average surpassing 40,000 points for the first time ever has good implications for Americans and their 401(k) retirement accounts..

The Dow’s climb above 40,000 signals a period of market strength and optimism, showcasing the resilience of the US economy despite challenges like high inflation and interest rates. For individuals with 401(k) accounts, this milestone is likely to have a positive impact on your retirement savings.

“The significance is psychological,” says Jason Ware, chief investment officer of Albion Financial Group. “It makes [investors] feel like we’re [doing the right thing].”

A robust stock market often translates to increased returns for 401(k) investments. As the Dow and other stock indexes reach new highs, the value of many retirement portfolios will see growth, potentially boosting the overall account balances of 401(k) holders. For some context, the average 401(k) portfolio had 70.5% allocated to stocks by the end of 2023, up from 68.2% at the start of the year.

This growth can be particularly beneficial for those nearing retirement age, providing a cushion for their future financial security.

How the stock market has performed in 2024

Since the beginning of 2024, the Dow Jones index has shown plenty of growth, increasing by 6.2%. The market has been influenced by at least slightly positive news on inflation and interest rates. While neither have gone down as much as expected, the belief they will is enough to ease investors minds, and open their wallets.

“Investors are anticipators. And they are enthusiastically anticipating a cut in interest rates,” Sam Stovall, chief investment strategist at investment research and analytics firm CFRA Research, said. “They are also calmed by the likelihood we will be avoiding a recession.”