Several times over the last month or two, I have had co-workers tell me one of two things regarding their retirement accounts:
- That they were thinking of moving all of their investments into the cash or money market fund.
- Or, even worse,
- That they were thinking of stopping contributions all together.
In my opinion, both of these moves are bad, for multiple reasons. If you think the bottom hasn’t occurred yet, you are still trying to time the market or predict the future if you think it is going lower. You should really be considering long term asset allocation if you are making asset class changes, not trying to predict the future. And if you stopped contributing all together, you are likely missing out on an employer match and tax benefits. I would also guess the same person would miss the boat on when it felt OK to start contributing again.
The increase in the Dow Jones and S & P 500 over the last two days should teach us something. And I really don’t know if or when the stock market will bottom out, or if it already has. It really doesn’t matter. It has risen about 3% or so in two days. If you moved all of your money into cash, when you do get back in, it will most likely take you longer than two days to make 3%.
In order to achieve the average stock market results, or historical returns, you have to be in the stock market the whole time over that time period in question. You cannot move your money in and out and expect to achieve an average result over any period of time. Most people are satisfied with the average stock market returns over a 20+ time period.
You have to be in to win.
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{ 3 comments… read them below or add one }
You offer solid points.
The stock market is like bouncing a yo-yo up a flight of stairs. Right now the yo-yo has dropped offering a wonderful opportunity for investors. Those who continue dollar-cost averaging their retirement accounts in diversified portfolios of equities will eventually be rewarded for their discipline.
As Mark Twain said: History doesn’t repeat; but it does rhyme.
Fine fine for 7/08 but do you hold this same stance through to today? If you leave what is currently in the 401K but contribute elsewhere instead (promotional savings accounts, the craps tables at Vegas) is it nesc. all that worse and then plugging that money back into your 401K sometime late summer ‘09?
@Alberto- Good question! For retirement, I still believe it is good to keep contributing, especially if your company matches. If you think you need to save up cash, (such as a potential for job loss) in this tough economy, and it makes you more comfortable, then it is not terrible if you reduce your contributions slightly. It also depends on your time frame until retirement-the longer you have, the more time you have for things to even out.