Please ensure Javascript is enabled for purposes of website accessibility

1-in-5 Younger Workers Are Making This Huge Investing Mistake Due to COVID-19

By Christy Bieber – Jun 22, 2020 at 10:59AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's no time to hit pause on retirement saving.

The COVID-19 pandemic has prompted some younger workers to make a change that could cost them. As many as 21.1% of workers who are 10 or more years from retirement have suspended contributions to their retirement accounts, according to a new study from financial management site Personal Capital

For some, this makes sense. If you've suffered a job loss or cut in income and are worried about paying bills, retirement investing should be on the back burner. And if you don't have an emergency fund, you may want to focus on building one during these turbulent economic times, even if retirement saving has to wait. 

But if you've pulled back on investing out of concern about what the stock market will do during a COVID-19 recession, you may want to rethink that because suspending or reducing your contributions right now could be very costly. 

Broken piggy bank with coins spilling out.

Image source: Getty Images.

Why you shouldn't suspend your retirement account contributions

For most people, building a large enough nest egg takes a lifetime of contributions. And the sooner you start making them, the easier it is to save enough because your money earns compound interest.

When you pause your contributions, you don't just lose the money you would've invested; you miss out on all the returns that money would have earned. And that just means you have to save more later to make up for it. 

Missing out on investing now, during a recession and amid market volatility, could be even more costly. That's because economic downturns present buying opportunities that enable you to maximize your return on investment (ROI).

If you purchase stocks or index funds when they're on sale, you benefit from an inevitable economic recovery and will almost assuredly earn a better ROI than if you buy only when things are going well. The goal is to buy low, and you're better able to do that if you aren't afraid of investing when the going looks rough.

Not convinced? Just consider the advice of Warren Buffett, one of the world's best investors: Be fearful when others are greedy, and greedy when others are fearful.

Recessions and times of economic turmoil tend to breed fear, but that's why it's so important for you to stay the course right now and even consider increasing the amount you're investing rather than cutting back -- especially when you're making retirement investments that you'll hold for the long term. 

Find the money to contribute if you can

If you're taking care of the basics and don't have spare cash, try not to worry. While it's unfortunate you have to stop investing, meeting your current needs should take precedence; you can make up for lost time now by investing more later. 

But if you have any extra money after paying for the essentials, such as cash from your stimulus payment or unemployment checks, consider putting some of it into the market. This could mean cutting back on discretionary purchases or reworking your budget, but it's worth it if you are smart about how you invest, minimize risk, and end up with enough cash as a retiree. 

The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.