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You would think people have learned to stay the course with their retirement accounts when the stock market gets shaky.

Unfortunately, not so.

A new report finds that 401(k) participants keep on selling during market downturns despite being repeatedly told to chill.

For example: In early August, markets went topsy-turvy as investors, including 401(k) participants, got jittery about the economy, according to the Alight Solutions 401(k) Index . Stocks began to slither south on Aug. 2, prompting 401(k) plan participants to make trades in their plan holdings — trading at around 1.7 times their normal activity. Then, when stocks went into a full-blown tumble on Aug. 5, trading activity exploded to 8.3 times an average trading day, per the data that tracks the inflow and outflow from 401(k) plan account holdings.

Here's what to do with your retirement savings when the markets are shaky

That hasty freakout by 401(k) plan savers triggered a flight to safety. People pulled 401(k) money from company stock, large US equity funds, and target date funds and shifted to stable value, bond, and money market funds.

The last time trading activity was this high was March 2020, as markets were adjusting to the uncertainty of the COVID-19 pandemic, said Rob Austin, vice president at Alight Solutions.

The freakout wasn't a good thing. The S&P 500 ( ^GSPC ) fell 3% on Aug. 5 — the worst day in nearly two years — and then gained 1.04% on Aug. 6, dropped another 0.77% on Aug. 7, and jumped 2.3% higher on Aug. 8. People who jettisoned stocks on the 5th would have missed two solid rebound days.

For the entire month of August, 20 of 22 days, people leaned into investing new contributions to fixed-income funds, according to the index, which tracks the trading activity of over 2 million people and details the monthly volume, asset flows, and market activity of accounts.

“It is not unusual,” Austin told me. “We’ve been tracking daily behavior since the 1990s and know there will be higher than normal trading whenever indices like the S&P 500 drop by 2% or more in a day.”

'Head to the hills' mentality

A few things can cause people to want to “head to the hills with their money when the market swings,” Steve Parrish, professor of practice and scholar in residence at The American College of Financial Services , told Yahoo Finance. “There’s recency bias. People tend to both favor recent events over historic ones and overemphasize their importance, and when they see a current market drop, they project it forward well into the future,” he said.

Second, loss aversion is a huge driving force, Parrish said. “People enjoy a market surge, but they detest a market drop. They remember how they felt the last time there was a drop, and they don’t want to relive that feeling. So, they take their money and run for safety.”

The truth is that retirement savers can’t afford to be so hasty.

If you’re saving automatically in your employer-sponsored retirement plan, or you’re making automatic contributions to a Roth IRA or a traditional IRA and are years from retirement, you’re always investing in your retirement accounts regardless of whether markets are up or down. That smooths out your returns over the long haul.

Meanwhile, many retirement savers these days have their funds set aside in target-date retirement funds so the account is automatically adjusted when the markets get out of whack. Generally speaking, for example, at Vanguard , "portfolios are rebalanced if the portfolio’s asset allocation has drifted from its target asset allocation by a predetermined tolerance threshold, for example, a threshold of 1% or 2%."

Other firms might rebalance monthly or quarterly. Currently, there seems to be no standard rebalancing methodology when markets get woozy.

With a target-date retirement fund, you select the year you’d like to retire and buy a mutual fund with that year in its name (like Target 2044). The fund manager then divides your investment between stocks and bonds, fine-tuning that to a more conservative mix as the target date nears, or soon after.

The reality: It’s pretty hard to find the best time to sell and to buy stocks. If you exit when markets dip, you might fail to catch the gain when they start climbing again.

If you're firmly in the do-it-yourself camp, here are some steps to take.

Revisit your asset allocations. "Investors who haven't thought through their risk tolerance based on their age and retirement goals are more likely to panic sell," said Mark Johnson, an investments and portfolio management fellow and professor at Wake Forest University.

Financial advisers typically suggest rebalancing (adjusting the mix of your stocks and bonds) whenever your portfolio gets more than 7% to 10% away from your original asset allocation.

“With the help of diversification, a long-term investing strategy, periodic portfolio rebalancing, dollar-cost averaging, and avoiding market timing, investors have little to worry about,” Johnson added.

An annual check-up can do the trick. If, for instance, having too large of a chunk of your savings invested in stocks makes it hard for you to keep it together when markets swing, then you might consider trimming those holdings.

The key is to ride out the chaos with calm and take action when things quiet down. “Think of those videos where an adult puts candy in front of a child, instructs them to wait to eat the candy,” Parrish said. “If they do so, they’ll be rewarded with even more candy. Some wait, but the majority go for the quick result."

Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including " In Control at 50+: How to Succeed in The New World of Work" @kerryhannon .

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