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Should I Keep Investing in My 401(k)?

By Stuart Schultz

If you've been watching the news over the past few weeks, you might have noticed how the stock market lost 50% of its value and everyone started freaking out. But what if you've been depositing money in a 401(k) or Roth IRA? Should you keep pouring money into a sinking ship?

In a word, probably yes. The sad truth is that all those people in their fifties and sixties who were about to cash out of the stock market and retire on their spoils are in a whole heap of trouble. Yet counter-intuitively, you'd be wise to do the exact same thing that they did when they were in your shoes: invest in the stock market. In fact, there is no better time than the present to begin investing for your retirement, whether that’s in 401(k)s, IRAs, or anything else. I know the market sounds like a bad word to some people right now, but read on and by the end of the article, determine whether or not you agree with me that now’s the perfect time to contribute to a 401(k) or open an IRA if you haven’t already don’t so.

Retirement Saving is About the Long Term

The most important thing to keep in mind is that when you are investing for retirement, you aren’t looking for a quick buck; instead, you’re looking for a consistent appreciation of your cash over time. And lucky for you, market forces are on your side. Let’s assume you’re investing for retirement at age 60. This means your "investment horizon" is roughly forty years. Now take a look at what any stock market index has done over any historical forty-year period. I bet it will have grown significantly.

Of course, historical stock performance can never be called an irrefutable predictor of the future, but let's put it this way: if you don’t agree that the market will be up within forty years, it means that you think that the American economy as a whole (and, more broadly, America as a country) is fundamentally flawed beyond repair. Do you really think that in the long run, America won’t rebound? Is this the Fall of Rome?

If you believe that America will be fine in the long run, then any investment you make today that you can stomach for the long run, will be just fine (if not great).

But what about today's retirees? Surely they were thinking exactly the same thing back in the day, and now they're suffering the consequences as they've just lost a ton of value in their retirement portfolios and can’t retire.

True, their portfolios plummeted, but if you believe in America, it’ll be just fine within 3-5 years. Of course this sucks for them considering they were planning to retire, but it doesn’t mean that their entire life savings have just been wiped out. It just means they’ll have to wait a bit longer (and unfortunately work a little longer) before they can realize it (i.e., wait for the stock market to rebound).

If you're really afraid that what just happened to them could happen to you, there are in fact ways to protect yourself. The easiest of is to lock in your returns when the economy bounces back and is on an upswing. This can be done by converting stocks into bonds. Bonds aren’t growth vehicles; instead, they’re used to provide a consistent return over time and return your principle as well. So let’s say you’ve been investing for 30 years and know you want to retire in the next ten. Then it’s time to start thinking about converting your stocks into bonds and then downswings in the market won’t effect you.

Investing for Retirement Is Also About Shielding Taxes

All of this market doom and gloom aside, don’t forget that another reason to invest for your retirement is to be able to shield some of your hard-earned money from taxes. You should really be investing for retirement already, but in the event you haven’t Uncle Sam has given you an incentive: Tuck your salary away into a retirement account and don’t pay taxes on it now. Furthermore, if your employer is willing to match your 401(k) contributions (or even a portion of them) as part of your benefits package, you'd be losing out on free money if you didn't start saving.

Invest for Retirement Today

So there you have it. I hope you’re sold by now. Even though it’s a scary time, there’s no reason to stop investing for retirement. In fact, considering that the market has lost so much value, now’s probably a very good time to get in because stock prices are extremely low. So beef up those 401(k)s and IRAs and make sure that your dreams of retiring and becoming the shuffle-board champ can become a reality.

See: Investing in 401(k)s and IRAs

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