With the economy in the middle of a giant plunge, it is getting harder and harder not to feel a little panicked when you watch your 401k balance drop by $10-20,000 or more.
In the last 6 months my wife and I have watched our 401k do just that.
A poll on CNN Money says that 60% of Americans feel that a depression is somewhat or very likely to happen.
So what should we do when we're facing an uncertain economy, and uncertain markets? Do you try to time the markets, and get out before you lose it all? Do you buy more stocks in the hopes that the markets won't go down much more?
What is the correct course of action in a market like this?
With that in mind I decided to take a look around the blogosphere to find out what other personal finance bloggers and regular folks are saying right now.
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Advice From Around The Web
One of the first places I looked for input today was on Twitter. I asked my 15,000+ followers what they thought of the current market, and if they thought people should get out of the market, keep their regular investments or if they should buy now while the market is down. Some of the responses:
- Keep plugging, unless you think this is the end for the US and we won't ever recover.
- Buy at a bargain!
- I am staying put. I haven't bought anything new, but definitely not selling now. No selling unless you need funds in the immediate future
- Stay! Buy low, sell high, not the opposite! Unless you need the money right now for an emergency, leave it be.
- Buy more, assuming you've got time on your side.
- Run, my vote is to get out now.
- Buy now! If my grandparents had been able to buy right after the 1929 crash, they'd have been rich.
For the most part the responses all seemed to be along the lines of saying that they don't plan on getting out of the market, they'll just keep plugging along with their normal 401k contributions, especially if they have time on their side. Many of them also said they're considering contributing even more to their retirement plans right now in the hopes that they're getting some rock bottom bargains on stocks right now. One or two people said that they were getting out of the market completely, and converting stocks to low risk fixed value investments.
Blogger Commentary And Advice
In browsing the blogs in my reader, I am seeing a lot of opinions on the topic of what to do right now. Jeremy over at genxfinance.com, who is a financial advisor, talks about how with the market plunging, people are viewing the situation differently depending upon their personal situation:
Depending on who you are and how close you are to retirement, you might view this situation as a great opportunity, or a complete disaster that’s going to force you to delay retirement. I’ve had some people in my office this week recognize the long-term opportunity and increase their contributions to their retirement plan significantly. I’ve also had people in my office that completely break down and start crying because of the impact this is having on their lives.
If you are investing for the long term and aren't planning on delaying your contributions, you still may want to take this time to re-examine your investing strategy. Depending upon how much risk you're willing to take, when you plan to retire and other factors -you may need to make some changes.
This might mean readjusting your portfolio, putting more money into bonds, or even increasing how much you’re investing. If you’re doing all the right things, taking on the appropriate level of risk, and understand the role each investment plays in your financial plan, then staying the course isn’t such a bad thing after all. But if you’re doing the wrong things and are taking more risk than you’re willing to stomach, it might be time for a change.
Jim over at WalletHacks.com gives the advice that if you have lots of time before retirement, you shouldn't get too worried about the current situation. If you're closer to retirement, you may want to be more conservative.
If you’re like me, about forty years away from retirement, the answer is that you should do nothing differently. Make your regular contributions, check your asset allocations, and do something else with your time. A lot can happen in forty years so you shouldn’t do anything rash like liquidate all of your assets. We had a recession in the 80’s, a mere twenty years ago, and since then we’ve seen the longest bull market period in a very long time. Trying to time the market is a fool’s errand and, honestly, your time is better spent enjoying life rather than fretting about your balance sheet.
If you’re slightly closer to retirement, say ten years away, now’s a good time to adjust where your new contributions are going and go towards a more conservative allocation.
Over at gatherlittlebylittle.com the advice is simple. Stay the course.
I wrote a few months back about what to do if you started seeing your 401k losing money. My advice then was to hang in there and keep investing. The market at the time was beginning a downward trend, but only gradually. Since then the overall decline has become far more significant. Now what do we do?
I’m sure I’ll get a great deal of replies from people that disagree, but I’ll stick with my initial advice: Stay the course.
He goes on to explain that because of dollar cost averaging we're getting a pretty good deal on stocks right now:
Right now, you’re buying more shares for the same money..lots more. When the market does turn (and contrary to all of the stock market chicken little’s running around screaming the sky is falling, it will return) all of that stock purchased at a low cost will yield high returns.
Miranda in her article “Stop Panicking. Seriously. Stop.” tells us to calm down:
Try to avoid looking at your retirement account statement, and remind yourself that over the long haul, the stock market gains. Consider unloading only the especially vulnerable investments. If something still has solid fundamentals, stick with it.
Over at mytwodollars.com David offers up some CNN advice for a few safe places to put your money right now, especially if you're not sure you want to stay in the market. Among the are money market accounts, CDs, Bonds and money market funds. Click here for more details.
Flexo over at consumerismcommentary.com tells us that while it can be tough emotionally to ride out a down market like we have, in many cases that is the best decision.
While some pundits are calling for a Dow as low as 8,000 before we hit bottom, it doesn’t make sense to make reactionary decisions, particularly when the money is invested for the long-term. It does help to review your risk tolerance to determine if you can face downturns and to find a way to strive to separate your emotions from financial decisions. Emotions are there to guide us, to let us know what may be right for us, but when emotions form the basis of financial decisions, investments suffer.
My Conclusion? Don't Panic.
In reading all of the advice out there it seems like most of them have come to the same conclusion (as long as you have plenty of time before you retire – 10+ years)
- Don't panic.
- Evaluate your investments and rebalance your portfolio based on your willingness to take on risk.
- Stay the course.
Staying the course may be easier said than done, but in the long run you'll most likely come out ahead.