401k Investing in a Struggling Market

401 TIPS FOR A STRUGGLING ECONOMY
Where to invest when the economy is down can be tricky. Below are some common questions we have recently received regarding investing during hard times and our answers.

Question: I am 23 years old with a decent job. My job has an outstanding benefits package. Last month I became eligible for the 401K that they offer. With the current state of the economy, should I begin investing in my 401K or look to wait until the economy better stabilizes.

Answer: Since you are so young, you are in a great situation. The sooner you start putting money away, the more money you will save when you retire. And if your company is going to match your 40K contributions….that’s free money! Yes, the economy is currently in an unstable state and the stock market has been very low. But, that means that stocks are on sale! Your investing is more about long-term goals, not short.

Question: Should I suspend my 401K because of what's going on with the markets?

Answer: It is never a good idea to stop making contributions for multiple reasons. You are going to miss on the free money your receive from your employer match. Another important reason to not stop is that people often neglect to restart their contributions. And lastly, it is impossible to predict when the market is going to turn around.

According to one recent study, your returns are going crater at least 43% if you miss 20 days in the market. Most importantly, if you buy when the market is down, you are lowering your cost of investing.

Right now stocks are cheap. Now is the tie to invest. You would not intentionally avoid a sale on clothes or groceries, right? However, when the market is weak, people tend to back out of the market.

Discontinue making contributions only in the event that you have real financial issues and have no other source of cash for paying --- i.e. medical bills, car repairs, utilities, etc..

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