Investing for the future is challenging enough as it is, but investing during a global pandemic brings an entirely new set of challenges.
The average 401(k) balance dropped by nearly 20% during the first quarter of 2020, according to research from Fidelity Investments, and the average IRA balance declined by around 14% in that time period. The stock market has surged in recent weeks, but there's a chance another market crash may be on the horizon.
In other words, these are uncertain times for investors. While making smart financial decisions can be tough when nobody knows what the future has in store, there is one major mistake nearly half of baby boomers are guilty of making.
To invest or not to invest?
The stock market has experienced extreme volatility over the last several months. Earlier this year the S&P experienced its worst quarter since 2008, only to recoup its losses a few months later and turn positive for the year. These drastic mood swings can send mixed signals to investors, making it unclear whether it's a good time to invest.
As a result, many investors are choosing to play it safe, with nearly 44% of baby boomers saying that now is not the right time to be investing, according to a survey from Personal Capital. Older workers may be particularly cautious about investing because of all age groups they're the closest to retirement. However, in some cases, choosing not to invest could actually be a risky move.
Saving for retirement is no easy feat, and it takes decades of investing consistently to save enough to retire comfortably. If you press pause on investing for retirement, you're missing out on valuable time to save.
Baby boomers in particular should keep investing as consistently as possible to avoid falling off track for retirement. The closer you get to retirement age, the less time you have to prepare. It could potentially take years for the stock market to stabilize, and if you wait until the market is less volatile to begin investing again, you might run out of time to save as much as you need for retirement.
When it's not the ideal time to invest
In many cases, investing during a market downturn can be an incredible opportunity to build long-term wealth. Stock prices are typically at their lowest during recessions, making it a good time to invest at a discount. Then once the market recovers, you'll see significant financial gains.
However, not everyone should be investing right now. This is primarily true for those who are struggling just to pay the bills or have no emergency savings set aside.
When you invest in the stock market, it's a good idea to assume you won't be able to touch that money until retirement. That means you should be careful not to invest more than you can afford. If you've lost your job or think your job may be at risk, it may be wise to hold off on investing for the time being to ensure you can cover all your everyday expenses. Similarly, if you're still employed but have no emergency savings, focus on building an emergency fund before you invest in the stock market. Investing is a long-term way to build wealth, so be sure you're only investing money you know you won't need anytime soon.
It can be daunting to invest in the stock market when it's experiencing volatility. However, investing consistently during the good times and the bad is one of the best ways to build a robust retirement fund and create a secure financial future.