If you work somewhere in corporate America (or most places really) one of the most popular topics of conversation besides the huge slides and wild swings in the stock market has been variations of the following questions:
Should I stop contributing to my 401k?
Should I lower my 401k contributions?
Should I move my money out of stocks and into bonds or a money market fund?
One of the most popular articles on my site right now is Should I Stop Contributing to my 401k to Pay off Debt?, and most people are reaching it by searching for “Should I stop contributing to my 401k”
There is an obvious reason for these question and ones like them. People are afraid. No one likes to lose money, even if it is only on paper. If you are only a few years from retirement (around 10 years or less), you do have some valid questions, but hopefully you portfolio is diversified based on the time frame of when you will need to draw from your retirement fund. If not, now might not be a great time to move things. But you could start putting all of your new contributions into safer investments, to balance things out.
What if you are 20, 30 or 40 years from retirement?
Now might be a great time to INCREASE your 401k contribution
It’s true.
One person I know told me they were going to do this, and I think they are brilliant. This is the question people with a long retirement horizon should be asking, not if they should stop or decrease contributions. With so many years before retirement, a little foresight could pay off big. And it sure beats the heck out of all the pessimism going around.
If you know anyone who lived during or right after the depression (but I am not implying this is the same), what do you think their answer would be if you asked them if they wished they had invested right after the stock market crash or even a few years later?
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
– Warren Buffett
What are your thoughts on this? Should those with long time horizons be looking at this as an opportunity of a lifetime?
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Matt 10.08.08 at 6:05 pm
The stock market is a LONG TERM INVESTMENT!!! Dave Ramsey always likes to point out that there has never been a 10 year period in the history of the stock market that has been down. In a nutshell, if you pick any date in the history of the market and pick that date 10 years later, the stock market is higher. It will always have its ups and downs, but (uh oh, I’m quoting Dave again), you don’t get hurt on a roller coaster unless you jump off.
Trying to predict the market in the short term is a fool’s mission. Don’t be a fool, invest and hold. I’ve talked to a few people that mentioned selling out their stocks, but panic selling is a bad idea! Now is a great time to buy at discount. Could the market go lower before it bottoms out? Sure it might, but you’re in it for the long haul, right?
My personal investment is maxed to the 401K matching. If I wasn’t still trying to eliminate my debt, I’d be sure to max out my contributions entirely. I would regardless of the market, but with the numbers down where they are, this is a no-brainer. The market will recover. The people that have faith in our long-term economy are the ones that will profit.
RC 10.09.08 at 6:40 am
@Matt: Good points, I like the roller coaster analogy, it sure feels like one now. I’m in the same boat as you, I’m getting the match, but trying to pay off debt. Wish I could “max out” right now!
Slinky 10.09.08 at 12:11 pm
If I could contribute more without affecting my other financial goals, I would. I’d love to have money to throw at the stock market right now. Like you and Matt, I’m working to pay off debt right now.
RC 10.09.08 at 7:09 pm
@Slinky:
I’m in the same boat, and wish I wasn’t. Although today’s market woes make me wonder if the drop is ever going to end!
Slinky 10.10.08 at 9:33 am
If you read the news, it sounds more likely that the world will end first.
Mac 10.10.08 at 12:54 pm
I doubled my contribution to my 401k. I just turned 30 and won’t be touching the money for quite some time. I was also just thinking to myself…what if everyone who has a good 10 years or more until retirement put more into their 401k? Couldn’t that help the economy?
RC 10.10.08 at 9:54 pm
@Slinky- You’re right about that-I wonder if all of the media attention is causing people to pull money out of the stock market when they wouldn’t have otherwise.
@Mac- Sounds like you made a good move to me. I am pretty sure that if everyone did that, the market would regain confidence and start rising pretty quick!
Slinky 10.13.08 at 9:18 am
It definitely is. I’ve heard more than one person asking someone else if they should be pulling their money right now. On a positive note, the answers I’ve heard so far have been good, but I’m sure that there are plenty of other people who are getting answers that are not so good. There would be a lot less panic selling if people understood a bit about how the market works, but I really don’t think that’s going to happen.
RC 10.13.08 at 10:24 pm
@Slinky- I think you are right about the panic selling- maybe today’s huge gain will keep some people from bailing out of the market, after seeing how big a gain there was today!
Budgets are Sexy 10.19.08 at 7:51 pm
Agree 100% - i’d max that bad boy out if you have the means! Esp if you have some great matching. That’s free money AND cheap funds - can’t beat that.
CindyS 10.20.08 at 7:42 am
It’s like having a huge stock sale. If I had additional funds, I would be investing in stocks right now. The trick, I think is knowing which stocks to invest in. Even without raising your investment in your 401K, the investment will be worth more when the market goes back up.
threadbndr (karla) 10.20.08 at 2:39 pm
I’m about 15-17 years from retirement and I’m plugging money into both my 401(k) and my Roth at the same rate as I was before the market meltdown. I did the same during the dot com downturn and the saving and loan fiasco in the 1980s. Is my portfolio down? - yes, of course. Have I lost any of MY money (deposits I put in)? - nope, and not even reinvested dividends - just gains. That’s disappointing, but I’m pretty sure I’ll gain it back, just like the last two rounds.
In the mean time, job is good, house is still paid for, still debt free, still have a year’s cash cushion. And my mom’s surgery this morning was a success. I figure that last one is the only one that REALLY matters.
RC 10.20.08 at 9:28 pm
@Budgets- Yep, the combination is hard to beat!
@Cindy S-I am in the same boat , wish I could invest more right now. Index funds are probably a good idea right now, too.
@Karla- Actually, that doesn’t sound to disappointing to me- as you say, you gained it back (and probably then some) after the last two “bear markets”.
Sounds like you are in pretty good shape- Glad to hear about your Mother too-you are right, that is what really matters!