Another day, another dive in stocks. Or, at least, that’s the way it seems. And, for most of us, the main concern is about our retirement funds. Whether you have a 401(k) or IRA, the volatility in markets is unsettling. It’s hard not to ask yourself whether you should be putting your money on the sidelines.
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But making investment decisions based on one day’s market action is nearly always a mistake. Your investment decisions should be motivated by bigger considerations, like your asset allocation or just how far away you are from retirement. Moving your money should be a deliberate, planned act, not a whim. As John Bogle, the founder of Vanguard Investments, likes to say, “Don’t just do something, stand there!”
And, the reason it’s so important to stay the course and stick to your guns is because you don’t know what tomorrow will bring. Stocks could rally to a four-year high. What’s more, when the stock market is beaten up, you are buying assets on the cheap. So, instead of paying top dollar for a company like Apple (AAPL), say, you get to pay less. If we were talking about cars or clothes or shoes, I wouldn’t have to even make this argument because so many of us are used to waiting for the sale to buy. But for some reason, when it comes to investing, everybody wants to pay top dollar.
Americans have some $24 trillion in retirement savings, according to MetLife (MET). And, while that’s a lot of money, we are critically underinvested and under saved. According to Fidelity Investments, one of the biggest 401(k) providers in the world, the average 401(k) balance is about $91,800. Sound like a lot? It’s really not because $91,000 will barely cover three years of living expenses – if you decide to be super cheap! So the right action today is to set aside more, not less.
I am somewhat encouraged by a recent survey. Three out of five Americans told Bankrate.com in a survey released this week they are spending less each month. Some said they are opening their wallet less often because they haven’t had a raise in a while, others said they need to save more. I believe this is good news because it shows that we are getting more serious about our future. Making your way in the financial world means spending less and weathering the inevitable market storms. But the payoff can be rosy retirement.