Monday, the DJIA saw its worst decliner since Y 2008 in response to news of COVID-19 and the Saudi/Russia Crude Oil price war, and the ride the stock market/s have taken in the last 2 wks has left lot of investors with stomach aches.
If you have a 401(k) or IRA, and you checked its value Monday evening, you may have felt your own steep drop in the pit of your stomach.
Here is what you need to know if you are worried about your 401(k) in the latest market chaos.
To understand why you should not panic much about your retirement accounts, you need to know how they work.
A 401(k) is an employer-sponsored investment plan while Individual Retirement Accounts, either traditional or Roth IRA are typically set up by the individual to invest money toward retirement.
If it is a 401(k) or traditional IRA, you get the tax benefit up front and pay when you withdraw.
If it is a Roth IRA, the withdrawals are tax-free.
Either way, by adding money on a regular basis, these accounts let you grow your retirement nest egg that you can live on in your retirement.
In the beginning, you have more time to take risks on investments like stocks, and when you get closer to retirement age, you will shift investments to less-risky categories like bonds, cash and gold that do not lose their value during a market slump.
So, when there a dip in the stock market, there is ample time to recover if you are younger and you will be better protected from the ups and downs as you near retirement.
Watching your 401(k) balance take a dive is not fun. But this is not the time to panic, and that is because the cash component of your account, as well as the contributions you should continue to make, can be used to buy up more equities at rock-bottom prices.
So, selling is the last thing you want to do because you will be locking in your losses.
It makes sense to ignore the MSM. if it puts you in a panic about your retirement accounts. I call it Noise!
Use the calendar and not the financial news and check your portfolio on a Quarterly instead of daily. And do not withdraw money from an IRA or 401(k), as the penalties for early withdrawal are big.
Note: It typically takes the stock market 1-2 years to correct itself, in this case it has taken 11 years, so a day or even a few weeks of volatility should not change your long-term strategy.
And even if you are closer to retirement talk to a financial planner or speaking to your employer’s 401(k) representative to ensure your portfolio has the right mix of stocks, bonds gold and cash.
Slow, steady always wins.
Remember it is your money, and so your responsibility.