Why You Should Stay Invested, Even in Volatile Markets
6 Tips to Help You Maintain a Steady Path Toward Your Retirement Goals
When markets become volatile, it’s natural to consider pulling out and waiting for things to stabilize. However, the issue is that market drops and recoveries are highly unpredictable. Even if you sell at the right time, you’ll still face the challenge of knowing when to reinvest. Market recoveries rarely provide clear signs, and they often start when fears are still high. Exiting during downturns can lead to two setbacks: locking in losses and missing out on potential gains during the rebound.
1) Let Time Work for You
Stay invested. During market volatility, characterized by wide price fluctuations and heavy trading, it’s important to stay focused and not try to time the market. Time in the market counts more than timing the market.
2) Dollar-Cost Averaging
When you consistently contribute to your investments, you are also evening out the price you pay. When the market is high, investment shares are more expensive, so you buy fewer of them. When the market is down, shares cost less, allowing you to buy more of them for the same dollar amount. This practice is known as dollar-cost averaging.
3) Rebalance Your Investments
If you build your portfolio from your 401(k) investment menu options, make sure that you regularly visit it. The asset allocation that you initially chose can shift over time, so that an investment that’s done well becomes a larger part of your total portfolio than you want, or is no longer in line with the risks you’re willing to take.
4) Contribute Consistently
Remember to stay consistent with your contributions and even think about increasing them when the market is down. When investors react to market conditions, they tend to buy high and sell low, which is the opposite of wise, disciplined, long-term investing. Your company’s retirement plan deducts your contributions automatically from your paychecks, making it an easy habit to maintain!
5) Avoid Early Withdrawals
You may be subject to early withdrawal tax penalties if you choose to withdraw early from your retirement accounts. It will also reduce the nest egg you’ve accumulated for your non-working years which may give you peace of mind as you plan for retirement.
6) Review Your Account Periodically
Make sure that you’re still comfortable with the investments you’ve made. Do they still make sense for you? Do you have too much risk for your age? Too little risk (and return potential)? Your retirement plan may have added choices since you enrolled—choices that might be better for you today.
