Economic ups and downs are inevitable, but sometimes it’s hard to think beyond the downturns.
We seem especially sensitive to the condition of the stock market, since we’ve just passed the 10-year anniversary of the start of the Great Recession. Those memories of turmoil and heartache bubble right back up, and suddenly, we’re checking our retirement account statements with a bit more interest than usual.
To calm your nerves about the state of our economy, I called upon Bridget Todd, head of client strategy and development at New York-based coaching firm the Financial Gym.
“I usually tell clients to think about the 2008 financial crisis, when the Dow Jones Industrial Average lost more than 50 percent of its value,” she explained by email. “In the nine years since, it is up about 200 percent.”
While there are periods of discomfort, she said, the market will always recover. “The most important thing to remember is not to sell when things get bumpy,” she said.
Your 401(k) is a place to hold your investments. You can make decisions about what’s inside that account — stocks, bonds, mutual funds, derivatives, exchange-traded funds — depending on the level of risk you’re comfortable with.
If you’re at least 10 years from drawing from your 401(k), Todd recommends allocating 90 percent of holdings to stocks and the remainder to bonds.
“Stocks are the riskier asset,” she said, likening them to a roller coaster. But that fluctuation is OK. It will all settle out eventually, helping you earn that average stock market return of 7 percent per year that you hear about.
If you’re closer to retirement and nervous about the health of the market, you can pull back on how much you allocate to stocks to reduce your risk. But you still want some of your investment to be in stocks to help that nest egg grow.
In short: Hold on and enjoy the ride. Even if the economy takes a temporary dive, your contributions will still have value to carry you through to retirement.
If only we had that crystal ball in the meantime. Wait. That would probably be insider trading. Maybe skip the crystal ball.
Worried about managing your money in trying times? Write to Dear Penny at https://www.thepennyhoarder.com/dear-penny/
Lisa Rowan is a personal finance expert and senior writer at The Penny Hoarder, and the voice behind Dear Penny. For more practical money tips, visit www.thepennyhoarder.com.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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