-My friends are always trying to get free advice from me when it comes to financial planning, and I got a text message recently. It said, “Troy, the market’s going down. I’m scared. Should I stop contributing to my 401(k)?” I don’t understand why when the markets are going down, when you can’t touch this money for 10, 20, 30 years, you would ever consider not putting more money into your 401(k), not less. [music]
Hi, I’m Troy Sharpe, CEO of Oak Harvest Financial Group, CERTIFIED FINANCIAL PLANNER™ Professional (CFP®), and host of The Retirement Income Show. Your 401(k) is the greatest opportunity you have to save for retirement.
Not only can you get free money inside that account from your employer contributions or matching, but you have the ability to dollar cost average.
When the market’s going down, you should be jumping for joy because this gives you an opportunity to go shopping. How many of you when there’s a sale at the department store, or wherever it may be, you rush out, you want to go buy things? Think about Black Friday. Everyone goes shopping on Black Friday after Thanksgiving because things are on sale. When the stock market goes on sale, why is it that we get scared? Why is it that we become fearful and we don’t want to invest, when the dollars that we invest during the market sale are the dollars that can provide the highest compounded returns over time? What dollar-cost averaging means is you take the same dollar amount every pay period and you put it and you invest it in various stocks, mutual funds, whatever you have inside your 401(k).
Let’s say you’re investing $400 every pay period and the company is providing you a $100 match so you have $500 to invest every pay period. When the market’s up here, that $500, let’s say it buys a $10 stock, you’re going to get 50 of those shares of stock. But when the stock goes down to 5 and you invest that $500, now you’re getting 100 shares of stock. You’re going to get twice the number of shares and when the market rebounds, that’s where you’re going to make the highest compounded returns. Those dollars that you invest today, when the market is down, will give you the best returns over time because you’re getting things on sale. When the market goes down and you’re in the accumulation phase, take advantage of it. Try to increase your investments into the 401(k), and you’ll thank me later for it.