In turbulent economic times, you may be tempted to do something drastic such as cutting the contribution to your retirement plan or even pulling out of the market altogether.
If you are investing for a long-term goal, keep these points in mind:
Focus on long-term goals
Funding your retirement is a long-term endeavor. Looking at the changes on a day-to-day basis can be alarming, but historically the American economy has been shown to be pretty resilient.
You may miss a major market upswing
It's normal to experience market ups and downs. If you pull out of the market or stop contributing when the market is down, you would be selling low and missing out on potential market upswings.
Diversification helps address market volatility
Many advisors recommend spreading your wealth across a variety of investments to protect from a volatile market. As market conditions change some investments will outperform others. You can diversify across asset classes (stocks, bonds and cash equivalents) and within those classes.
Diversification is an investment strategy. It doesn't assure a profit or guarantee against loss in a declining market. Investing involved market risk, including the possible loss of principal.
Dollar cost averaging may help with the cost per share
With dollar cost averaging - or investing the same amount on a regular basis - you end up buying fewer shares of your investment when the market is up and more shares when the market is down. This may cut your average cost per share because you're buying fewer shares at a higher price and more units at a lower price.
By staying enrolled in your employer-sponsored plan, like a 401(k), 457 or 403(b) plan, you're actually practicing dollar cost averaging - and tapping into the strategy's advantages. By making contributions in consistent amounts, you're able to take advantage of regular investing through payroll deductions.
Although dollar cost averaging is a good method for long-term investing without having to navigate market fluctuations, you aren’t guaranteed a profit or protected from loss in a declining market.