First off, Happy Belated Thanksgiving! I hope your Turkey Day was full of good food and loving family. Now back to the money stuff.
If you’ve been watching the financial news lately you’ve heard that the stock market has been going down, erasing all the gains it made earlier in the year. If you’re already in the market you may be wondering about your 401(k). If you’ve been skittish about entering the market, this news probably reinforces your fears. But you know what I’m doing? Keep on keepin’ on.
Wait, what? That’s right. I’m continuing to invest in my retirement accounts at work and my Roth IRA. I’m not pulling out my money and stuffing it under a mattress. But Nneka, aren’t you scared of losing it all? Of course, it’s scary to see my accounts at the same level they were a few months ago. But it helps me to remember a few things.
The market bounces back (eventually)
Though not as certain as death and taxes, historically the US stock market tends to go up. Is there a risk that I can lose my shirt? Sure. But if the markets are doing so poorly that all my money is gone, there are probably larger situations at play. Like a zombie apocalypse. Nuclear war. The closing of all Targets in North America. In those instances, the stock market will be the least of my worries.
When the market dropped in 2008, I panicked. I didn’t pull my money out, but I stopped contributing to my Roth IRA, the only retirement account I had at the time. However, after playing around with the Portfolio Visualizer Backtest Portfolio I realized that I could have had thousands, if not tens of thousands, more in my retirement account today if I kept contributing.
I have a diverse portfolio
We’ve all heard the adage “Don’t put all your eggs in one basket.” A scriptural equivalent is Ecclesiastes 11:6 (NIV) “Sow your seed in the morning, and at evening let your hands not be idle, for you do not know which will succeed, whether this or that, or whether both will do equally well.” When I was a teenager, I worked at a well-known clothing store (let’s just say I sold a lot of khakis). I heard a fellow co-worker complaining that she put her entire 401(k) in company stock, which wasn’t doing well at the time. I could help but think, why would you put all your money into one stock?
Now, full disclosure, I’m not a financial planner, but for my peace of mind I’ve found a mix of stock (both US and international) and bond mutual funds help to ride out market ups and downs. I encourage you to check out the The Bogleheads’ Guide to Investing and The Bogleheads’ Guide to Retirement Planning to give you an overview of investing in the stock market. They’ve given me a wealth of knowledge about the different aspects of financial planning and to help me create my own investment plan. Speaking of which…
Remember your plan
Why are you investing your money to begin with? For me, I put money in these accounts for my retirement, which is about a couple of decades away. I’m investing for the long haul and won’t need to touch it for many years. Therefore, I can ride out this downturn and wait for the market to rebound. You need you have your own investment goals to guide you when the market takes a tumble. For example, if you’re closer to retirement than I am, perhaps your plan is to move your investments to bonds and bond mutual funds to protect your remaining gains. Bottom line, whatever you decide to do shouldn’t be a knee-jerk reaction. Rather, it should be in line with your original plan and goals for this money.
How have you been reacting to the latest financial news? Leave a comment below.