Quick note before today’s post: I make the assumption in here that the American economy will recover over the long term. That prediction cannot be guaranteed, no more than in 2008 or 2016 or any other moment in time. Though I do believe it to be extremely likely.
The past week has been scary for a few different reasons. Most obviously relevant to us here today is the fear many have experienced as they watched the investments in their retirement accounts drop.
Before you panic, there are some things you need to remember — especially if you’re a millennial investor.
Panic is the problem.
The panic around COVID-19 is real. While we don’t yet know if this will be any better or worse than the 1918 influenza outbreak, there is one thing we do know for sure: Panic rarely serves humans well.
This is just as true in the stock market as it is in any other aspect of our lives. If you are saving for retirement, the worst thing you could do right now is panic.
Panic may lead to:
- Selling off your investments after they’ve just experienced a dramatic loss.
- Taxes on withdrawals you shouldn’t have made.
- Loss of future returns your money now cannot earn because you pulled it out of the stock market.
Panic can lead you to exit the stock market altogether until you once again feel confident in it — presumably because it’s doing well again.
That’s called selling low and buying high. It’s the opposite of what you want to do as an investor.
You’ve already accounted for this. It’s a part of the plan.
If, however, you keep a level head and leave your money in your retirement account, continuing to contribute on a regular basis, you’re sticking to the plan.
And the plan has already accounted for this.
When you sat down to figure out how much money you needed to save for retirement every month, you probably picked an annualized rate of return somewhere between 6%-8%. That does not mean you will see a 6%-8% return every year.
Some years it will be dramatically more.
Some years it will be dramatically less.
In fact, some years, you might even experience a loss.
That 6%-8% interest you calculated accounts for the fact that there are going to be dips in the market. Heaven forbid, there will even be recessions.
But over the long term, the American stock market has historically always gone up.
That is what the 6%-8% represents: Over the entirety of your investment career, the stock market is extremely likely to rise, though it might dip and/or rise wildly between any given two days.
Sometimes those runs or dips can last for a sustained period of time.
What we experienced last week was one of those dips.
To be fair, it was a dramatic one. But it’s already been accounted for.
You haven’t lost any money unless you cash out.
You might look at your IRA and see that the number has gone down, but that doesn’t really mean you’ve lost any money.
That just means that if you cashed out today you would lose money.
If you let your investments ride this out and the market recovers as it has every other time in the past, you won’t lose money.
Quite the opposite. Your money will grow.
No one can tell you where you’ll find the floor.
Right now there’s a lot of people thinking:
“Hm, I wonder if this is the lowest the market will go. If it were and I invested right now, my money could only grow.”
If you’re one of those people, I’ve got nothing for you.
No one does.
Because no one can tell you where the floor is, just as no one can definitively tell you the future.
But many stocks are clearly less expensive now than they were seven days ago. If you’re investing for the long-term, it’s not an unattractive time to get started.
Don’t have a retirement account yet? Now’s a good time to open one.
If you’re feeling all cocky because you have zero stock market stress in your life because you don’t have a retirement account, let me take you down a couple notches.
First of all, if you don’t have a retirement because you cannot afford to save due to a low income, let me introduce you to the Roth IRA. It may just solve your problems.
But a lack of retirement accounts or any investments is not something to feel cocky about, even in the worst of times for the stock market.
In fact, when the stock market is doing poorly, you just may want to consider getting in on the game. While you cannot time the market, this is much closer to a successful “buy low, sell high” strategy you’d ideally want to achieve.
How to Open a Retirement Account When You Don’t Get One from Work
Since the Recession last decade, fintech has grown. There are now ways you can get in on the stock market even if your employer doesn’t offer you a retirement account because, ‘benefits? lol what are those even?’
There are ways you can get in on the stock market even if you don’t have an initial investment of thousands of dollars.
Roboadvisors now allow you to save for retirement with crazy small sums, even as little as $1. They allow you to do so outside an employer plan, though you can rollover your employer plans over using roboadvisors, too.
I got a really late start on investing myself. Coming of age during the last Recession, I was terrified of the stock market. I was great at setting aside money, but my cash wouldn’t earn enough interest to keep up with inflation, nonetheless grow.
Roboadvisors made investing an option for me by making the barrier to entry lower once I realized what a fool I was being for being afraid of the stock market. Once I realized how much I had caved to panic.
I currently like Wealthsimple, as they give me good options for socially responsible investing. They’ve also got Halal investment portfolios. Because they’re a roboadvisor, their portfolios run off an algorithm; you don’t need to know anything about investing to get started.
But this is bad.
It might be. We don’t know yet how bad things are going to get. I do not mean to minimize the loss of human life that has already happened and that which is yet to come.
My words do not come with an ignorance of supply chain disruptions, and how food shortages and Machiavellian healthcare policies could disproportionately affect those who have traditionally not had access to the stock market at all.
This could get bad. But so much of the stock market is what we believe it to be.
While I’m disgusted with much of my government at this current moment in time, I fundamentally believe in America and her ability to overcome all types of ill — whether they be physical or political. Her ability to strive for a better tomorrow, even when today is so tragically flawed.
So I’m choosing to invest in both her future and my own. I’ve got a few international mutual funds in the mix, too.