Staying Invested in Your Retirement Plan May Pay Off
In turbulent economic times like these, you may be tempted to do something drastic – like cutting the contribution to your retirement plan or even pulling out of the market altogether.
Just keep in mind:
- When you sell an investment, you take the chance of missing a major market upswing – and it can happen very quickly.
- Funding your retirement is a long-term goal. Investing for the short term may not give your investments time to potentially grow.
- Boosting the contribution to your plan may be the most immediate way to help replace recent losses.
- Continuing to invest on a regular basis over a period of time may actually help you overcome uncertainties in the market.
The last concept is called dollar cost averaging.
How dollar cost averaging works
When you invest the same amount regularly, you end up buying fewer shares of your investment when the market is up and more when the market is down – as it is now. This may cut your average cost per share because you’re buying fewer shares at a higher price and more units at a lower price.
By staying enrolled in your employer-sponsored plan, like a 401k, 457 or 403(b) plan, you’re actually practicing dollar cost averaging – and tapping into the strategy’s advantages. By making contributions in consistent amounts, you’re able to take advantage of regular investing through payroll deductions.
What else to consider
Although dollar cost averaging is a good method for long-term investing without having to navigate market fluctuations, you aren’t guaranteed a profit or protected from loss in a declining market.
Dollar cost averaging helps you avoid investing too much when the market is high and too little when the market is low.
Want additional information?
Learn more about this and other financial issues on the Investments Resource Center. Or talk with your employer, retirement plan administrator or investment professional.
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