Up until this summer, markets (especially the United States) had been on a steady increase for over 3 years. It was a great time to be an investor and the continued climb brought optimism, eased the fears of the Great Recession and encouraged new investment.
Now with markets in an official correction, the fear is back and optimism has disappeared fast. Interestingly enough however, this may actually be a better market for that new investment if you can brave the headlines. You may be asking yourself this question:
“Since my cash flow is so tight, should I continue to contribute to my 401(k) in these challenging times?”
The answer is simple…yes, you should. And here is why:
- Consider that each dollar not put into a pre-tax retirement plan is subject to federal and state taxes. A dollar saved in a retirement plan is a dollar earned, a dollar saved outside a retirement plan may only be 80, or even 60 cents earned depending on your income level. I’d rather take my chances with the market than lose 20% to Uncle Sam right from the start.
- Many companies out there are contributing some kind of match toward their employees’ retirement savings. Often this is done dollar per dollar up to some level. Let me be clear here, “THAT IS A 100% IMMEDIATE RETURN ON YOUR DOLLAR!” You can even afford to have a little credit card debt if your contributions are being matched. Put in at least up to the matching threshold, where the market can take 50% and still leave you with what you started with.
- When we have corrections, stocks go down. This is the perfect time to invest…you are buying low so you can eventually sell high! When news of the correction ending leaks, so does the return potential. Get in early and your bravery to test the tepid waters is likely to be rewarded.
Having a grounded financial plan and investment strategy will also help answer the question above. Emotional decisions are often made with haste and are not always the best decisions. When a map has been drawn, it is quicker and easier to find a destination. This also stands true for our financial wellbeing. By sticking to a plan and monitoring the success of their lives, not their investment accounts, people are using the recent correction as an opportunity. The reward of this will ultimately be reaped in the future.
Our goal at Mackey Advisors™ is to position our clients to have an incredible life regardless of their asset level; however that doesn’t mean passing up a good chance to buy in and be rewarded.