It is no secret that this year the market has not been kind to investors. With no group of investors paying attention more than those saving for and nearing retirement.
So during this time, a lot of questions come up. None more prevalent than, what should I do?
This can turn into any of the following. Should I change my contribution? Should I stop my contribution? Should I be more conservative? What happens next?
These are all great questions, and it can feel like in a time like this that there are no good answers.
My goal with this is to just give some thought towards these questions. Everyone’s situation is slightly different and because of that each situation is handled differently. However, some themes stay the same and that’s what I’ll talk about here.
Theme 1: Throughout history, down markets have always been seen as a buying opportunity once the dust settles.
If we take a look at the past 42 years, from 1980 until 2021, the S&P 500 has been down at some point during the year every single year. 32 of those 42 years the market came back to finish positive for the year.
Additionally, there has only been one stretch where the market finished negative for the year for consecutive years in a row and that was from 2000-2002. Otherwise, a negative year was always followed by a positive year.
So if we take a look back, we can see that down markets provide great buying opportunities as long as we are patient enough to see them out.
Theme 2: You haven’t lost anything unless you sell.
When we are investing, we are buying shares of a certain company. We aren’t buying a definitive cash amount, we are buying whatever a share is worth at that time. So when those shares are worth less during any one time, that does not mean we lost anything. We still own that share and as long as we don’t sell it, then we haven’t lost anything, it is just worth less at that exact moment. And while that is not what anyone wants to see or hear, we saw earlier that the market tends to come back and even increase after down markets. So as long as we don’t sell, we find ourselves not losing anything and even gaining in the long run as our shares are worth more over time due to growth and positive returns in the market.
Theme 3: Continuing to add contributions into your retirement savings as things are down are the steps you take if you want to create additional wealth for yourself long term and that one decision can be life changing.
No one can deny that it is painful to see your account value drop some. It is also painful to be contributing to your 401k each paycheck and continue to see the account value drop. However, similar to what we said before, this is temporary. That pain and loss is temporary. What we are actually doing at this time is one of the most vital, value adding steps of action we can take. We are consistently buying stocks and adding shares when things are on sale. What this does long term, is it allows for us to have that much more momentum when the market comes back. Which can be life changing when it comes to creating long term wealth for ourselves.
This one mindset change, a change from panic and selling to be patient and buy can drastically change our lives for the better in the long run. It just takes time to see the end result out.
Ultimately, it is often best to continue the consistent contributions to your retirement account. We have seen down markets before and will see them again, but adding during these times creates a bigger foundation for us to create more wealth for ourselves long term which can be life changing.