A FRIEND TEXTED ME yesterday. He wanted my thoughts on putting cash to work given the big stock market decline over the past few weeks. I took my usual approach, saying it’s always a good time to make retirement contributions, and that he should go ahead and swoop in. That was when the S&P 500 was down roughly 2% in the morning. We texted again in the afternoon before the closing bell—and after the market had rallied big. He was suddenly hesitant to keep his buy orders in place.
I sent him a graph of the past five days of market performance. While stocks had indeed bounced off Thursday morning’s lows, short-term returns were still awful. Look at the year-to-date and it looks like a good old-fashioned correction.
Investors should always take a long-term view. U.S. stocks are up tremendously over the past three years. Foreign shares, however, are up a modest 25% in that time, dividends included.
This month’s volatility should serve not as a signal to exit markets, but as a reminder to put money to work. Maybe you, like my friend, should go ahead and make your annual IRA or health savings account (HSA) contributions. Perhaps you can front-load your 401(k) plan deferrals. It’s not about timing the market—it’s about prioritizing your long-term financial goals.
What’s more, if you haven’t yet made last year’s IRA contribution, you still have time. April 18 is the deadline to make prior-year IRA and HSA contributions. For small business owners like me, you can even make solo 401(k) contributions for 2021 up until the tax deadline.
Skittish about investing right now? Consider that wars are not the worst thing for stocks, as callous as that sounds. On the other hand, if inflation continues to run at 7% a year, that could pose a problem—but that’s not what the market expects.
My tax accountant was perusing my return this week and said you need to max out your HSA. Great idea. $8200 for 2021 and can do it again for 2022. Increased my refund for federal and state too.
Almost certainly a wise move!
What’s the old saying, oh yea, “It’s time in the market not market timing”. There is no right or wrong answer, you have to live with your own investment decisions. My mantra: I hit for singles and doubles, not homeruns with my “core” ETF investments, i.e., DGRO, IUS, BUG, FREL, AWP, TIPX, QQQ and UTF. I then trade for alpha in REITS, XLE, METV, FLNG and EV stocks. GLTA!
A lot of ways work so long as you have a plan.
As a retiree, I have come to realize the dollar cost averaging can be very effective when markets are high. I buy a relatively small amount of stock every month, filling in the nooks and crannies of my portfolio.
Naturally, if the stock market really plummeted and stayed low for a while, I would start to buy a little more aggressively.
Nothing wrong with that approach. Thanks for reading!
Good and logical advice. I moved more into stocks yesterday. But sadly, average investors especially those nearing or in retirement often don’t see it that way. They panic and lock in their losses in an attempt not to “lose” more.
It’s unfortunate that when some folks see their 401k decline they view it as losing money.
I agree that many people tend to equate a decline in the stock market with losing money. That’s unfortunate because, if you haven’t sold any shares, have you really lost money?
True, the market price of the shares you own is lower today than yesterday, but if you haven’t sold, you still own the same number of shares. And those shares will continue to pay dividends. And if you reinvest those dividends, you’re buying additional shares at lower prices. And adding more shares to your holdings (which will themselves pay future dividends) will boost your compound growth rate.
All told, it can be harmful to one’s financial future to view a stock market decline as “losing money.”