When you open up the quarterly statement from your 401(k) next week, it’s going to look sad. There’s no shortage of economic woes out there: China, the Federal Reserve’s inaction, stocks being overvalued, you name it!
A lot of people will freak out and want to get out of the market. But a decline in investments when you’re younger actually creates more wealth when you’re older!
So should you go sell everything today? Absolutely not. If you’re putting in money through a retirement plan at work and have a lengthy horizon until you have to use that money, just keep going along paycheck by paycheck with your investing. That’s called dollar cost averaging, and it can make you a fortune over time.
No matter what happens, don’t let the noise of today scare you from saving for the long haul.
4 things to remember
Are you properly allocated? When is last time you actually looked at your holdings? The first thing to do is a checkup. Figure out if your asset allocation makes sense for you. For many people, what makes the most sense is a target retirement fund. You select the year closest to when you want to retire and simply put all your money into it. Then the fund manager adjusts the risk level over your working years. The asset allocation is handled for you with a target retirement fund!
Know your retirement horizon. If you have 20 or 30 working years ahead of you, don’t worry about what’s going on today. Just keep dollar cost averaging. Do not allow news of today to take you off the target you are trying to achieve, which is long term financial security.
Don’t put money in employer stock. When you take your 401(k) money and put it in employer stock, it’s like putting all your eggs in one basket. You’re getting your paycheck from your employer and you’re hoping to build up a healthy retirement on your employer’s back. Doing it that way ignores that companies have a lifecycle just like people. They do well for a period and then they may lose their way over time.
Investing should be dull. Why? So you get to live an exciting life. A lot of people think investing should be exciting because they live dull lives. I say exactly the opposite. That’s how you survive if a big stock market crash comes.
Read more: New ways for you to invest your spare change
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