I don’t come from money. Not even close.
So when I hovered my computer mouse over the link to view my 401(k) account late Monday, I took a pause, my heart fluttering. It was another day of deep stock market declines.
What would I find? How bad of a hit did my retirement portfolio take? I’m not going to lie: I said a quick prayer.
“Lord, don’t let it be down too much.”
The slide began last Friday, when the Dow Jones industrial average fell by nearly 666 points. Many folks made note of the significance of those three digits — the number of the beast. And it has been a beastly time.
Monday set a record for the biggest plunge in a single day, with the Dow dropping 1,175 points. This was followed by a day of ups and downs, with the market closing on Tuesday up 567.
I probably shouldn’t have looked at my account. Still, I clicked. The damage wasn’t as bad as I feared, but it wasn’t insignificant. Not when you come from an economic background where $500 is big money. Not when you are the first generation in your family to have money in the market.
Yet, I’m going to listen to the experts. In fact, here’s what a few of them said when I reached out, trying to put in perspective the volatility we’re seeing.
Greg McBride, chief financial analyst for Bankrate.com: “Markets have been addicted to low interest rates and global central banks pumping money into the financial system. As economies around the world are improving, this means higher interest rates and less stimulus from central banks. That’s why investors are throwing a hissy fit. Not because anything is wrong. Let’s look at the big picture: The economy is improving. If the market is falling, that means it’s now on sale.”
Carolyn McClanahan, a certified financial planner based in Jacksonville, Fla.: “People should always be in the appropriate asset allocation, taking only the risk they can afford to take. This way, regardless of market direction, they should be able to weather the storms of market upheaval. Running for the entry when the market is up and the exit when the market is down is following the herd to the slaughter. Market pullbacks should be reminders to rebalance.”
Jeanne Thompson, senior vice president of Fidelity Investments: “When the market is down and you are continuing to contribute on a regular basis, you’re buying in at a lower price, and you are taking advantage of dollar-cost averaging. When the market goes up, you know you’re realizing the growth from the market as well as from your contributions.”
Don’t get so scared of what’s been happening that you pull back from investing. What you should be fearing is inflation. Your money has to grow to keep pace with the future costs of goods and services.
Thompson pointed to research from Fidelity, which looked at 401(k) investors who got spooked during the 2008-09 financial crisis and moved their money completely out of stocks. Their average starting balance was $89,000 when the crisis started. As of the second quarter of 2017, their accounts had grown 157 percent to $223,000 — mostly because they continued to contribute. But 401(k) investors who had an average balance of $79,000 and stayed put in the stock market saw their account balances increase by 240 percent to $267,000. The latter group started with less but ended with more because of market growth and their continued contributions.
Here’s some age-based advice for investors no matter what the market is doing.
If you’re in your 20s, 30 or early 40s, don’t be afraid to be aggressive. “As long as you don’t look at your portfolios all the time and this is truly savings for when you are older, you can afford to be risky,” McClanahan said. “Don’t look at the market except to occasionally rebalance.”
“Invest in low-cost exchange-traded funds and/or index funds and don’t react to market volatility — time is on your side,” said Garrett Oakley, certified financial planner, certified public accountant and financial planning professional at the automated investment firm Betterment.
If you’re in your mid-40s to 50s, stay the course. You still have a lot of years ahead if you plan to retire in your late 60s, Thompson said. You don’t want to be too conservative, she said.
If you’re in your late 60s and/or retired, evaluate how much risk you can tolerate.
“Too many people are too aggressive when they are living off their retirement savings,” McClanahan said. “Make sure you aren’t taking more risk than you can afford.”
Feel what you feel, but keep in mind that your feelings aren’t facts. And the fact is the economy is still strong — so, as jittery as the market might be, there’s no need to act in a panic.