Published August 22, 2011
Last week, it felt like our 401k and retirement plans were on a wild roller coaster ride. If you are like me, this was an unpleasant experience. Although it would have been much better to our financial peace of mind not to have experienced such stock market “mood swings,” we decided to stay the course and not panic.
When I did a little research, I found that past performance is one of the best behavior predictors when it comes to the economy. Fidelity's Second Quarter 401k Trend Analysis said investors who maintained a diversified asset allocation strategy in their retirement plans during the recession of 2008-2009 saw an increase in their balances.
According to that document, plan participants that stopped their contributions during the recession saw only a 2 percent increase. However, those that kept contributing to their 401k plans saw average account balance increases of 25 percent. James MacDonald, the head of workplace investing at Fidelity, stated, “Our analysis reinforces that during extreme market swings, it’s essential for investors not to overreact and remember that investing for retirement requires a long-term view, regardless of their investment horizons.”
It's easier said than done! It’s been tough to look at our account balances. But the volatility in the market is usually fear-driven and temporary. Think of this swing in the market as a chance to buy more shares at bargain prices. Regardless of your financial institution, one thing is for sure: Remaining calm and committed to your long-term plan will help grow your retirement plan even in these uncertain times.
Yoly Mason writes about frugality and savings tips and tricks in her popular Spanish-language blog Cuponeando.net.