I learned a huge lesson since the start of the recession in early 2009. No matter what happens to the financial markets, don’t stop contributing to your 401K. In fact, during a downturn and when everyone panics, we should be doing the opposite. Stay calm and invest like there's no tommorrow. The real winners are the ones that goes against the crowd; the non-herd followers. I know many coworkers, friends, and family panicked when the financial market was spiraling out of control. For example, my mother did not feel safe during that time with her investment choices. She invested in mid caps, large caps, and foreign funds. With her balance decreasing daily, she panicked and moved all her money out of these funds and into more stable ones. By her action, I felt she had declared defeat by realizing a loss. Had she left her investments alone until today, she would have been able to recoup most of the negative return during that time.
What have I learned from this? I learn that the following three formulas matter in order to stay the course to a healthy retirement: Savings, Employer contributions, and Prudent investing.
Savings. Continue to invest in your retirement account and ignore the performance of the current market. Don’t stop saving. In fact, save at least 10% if you can or better up to the maximum allowed.
Employer contributions. Take advantage of free money your company has to offer you. If your employer matches 6% to the dollar, try to contribute up to this 6% in order to get the match.
Prudent investing. Keep stashing away cash from each of your paychecks. Stay the course and don't get distracted from all the negative news around you. Retirement money is here to stay and for the long run. 1 to 2 years of bad returns should not have an impact to your retirement approach. Most importantly, remember to diversify and not put all your eggs in one basket. And above all, be patient and give it time so your money can grow.
Loyal financial bee followers, what is your approach to your 401K?
5 comments:
I suggest you take a look at the graph of the Nikkei stock index over the past 20 years, and then ask yourself "Why should we believe that's not what the US has to look forward to"?
Yep, good advice! In fact I increased my contribution rate to the maximum and let it ride ( I blogged about it here if you're interested)
While it helped a little because of dollar cost averaging, my lose was severe (I'm still down a bit). I've had a nice comeback though (but I'm still underwater a bit, but it won't take long to be back to break even).
I'm new to the workforce so I'm pumping $$$ into my 401k every paycheck to maximize my potential earnings in the future when this economy turns around. I think I had good timing in starting my fulltime job. Too bad that's only true for investing and not getting raises ><
Anonymous, you can't compare the Nikkei to the S&P or Dow. Please remember that Japan is in a period of DEFLATION. They've kept interest rates so low to the point where their "boom" became a "bust." We won't be looking forward to that because our government is taking actions to stabilize our economy. Now, I can see where your fears are stemming from since interest rates are practically zero and have been hovering as such for nearly a year, but once the credit markets stabilize (thanks to credit reform as well as incentives), the economy should recover.
That said, I just started my 401K. I wish I had started it during the March 2009 lows, I would have been ballin' out of control right now. Either way, I agree with you on market downturns. Rather than seeing it as a loss, we should see this is an opportunity to BUY. It's pretty much a sale if you think about it.
Investing Newbie, too bad you missed your chance to be "ballin" back in March 2009. I totally have to agree that most if not all stocks were discounted hugely. I believe several of the stocks I had follow during that time managed to increase 5-10X translating into 500%-1000% return. My DH thinks my talk is cheap. But I just didn't have the money or guts to invest during that time.
In addition, I agree that Japan is in the dumps. Why is it taking their government so long to help with the rebound? I applaud Obama and our govt for doing such a great job trying to turn our economy around. No one would have imagine where we were and where we are today. If only I had a little faith in our govt during that time and scoop up all the cheap stocks, I would be ballin too right now. ***...sigh....****
Post a Comment