Stay the Course
Ever heard the term “dollar cost averaging”? What does the concept mean to you? In the retirement planning world, this is how you ensure that you aren’t trying to time the market with making payroll deduction contributions.
Keeping your contributions steady is a great way to smooth out the ups and downs in the market. Staying invested based on your long term goals is another. Trying to time when to be in the markets and when to pull out can be a very
costly mistake if you guess wrong. For example, the last quarter of 2018 saw the S & P 500 index drop 13.55%. If that drop in such a short period of time made you nervous and motivated you to move your investments from an equity
environment to a safe haven of money market investments, the next question is, “When do you go back into the market?” Human nature takes over and tells you to “wait until the market turns around” then jump back
in. By waiting for the market to recover also means missing out on some very big up days in the market, which can make a huge difference in your portfolio’s returns over a period of time.
Here’s how a $10,000 initial investment fared over the past 20 years depending on if its investor stayed invested or instead, missed some of the market’s best days.
So the moral of the story is; keep your payroll-by-payroll contributions consistent through good market movements and through not so good times. And stay the course with your investments, keeping your eye on the big picture and not the day to
day movements in the market.
If you have any questions or would like to talk to one of our retirement plan team members, the Retirement Specialists at First Merchants Private Wealth Advisors are here to help:
N. Jane Smith