Stock market downturns are inevitable -- but they can constitute a major blow nonetheless. And the current one we're facing has been brutal. In the span of just a couple of weeks, stocks plunged all the way into bear market territory, marking a 20% drop from former highs.
The reason for that plunge? COVID-19.
Daily reports of growing cases have sparked fear in investors, and disruptions to daily life are already changing the way Americans spend their money. And until there's some encouraging news on the COVID-19 front, we have to assume that things will stay relatively status quo -- lives will be put on hold and the stock market will struggle with its recovery.
So where does that leave you with regard to retirement planning? You be tempted to throw your hands up in the air and give up on ever recouping the losses you're seeing in your 401(k) or IRA. You may also be tempted to stop funding your retirement savings, and instead divert some extra money into your regular savings account, where it's not restricted. But before you upend your long-term financial plans, remember that one of the best things you can do for your retirement today is stay the course.
Don't stop funding your retirement plan
Whether you're planning to retire in 10, 20, or 30 years from now, remember this: This isn't our first bear market, and the stock market has a strong history of recovering from losses. As such, you can't assume that your retirement is doomed simply because we're going through a rough patch.
COVID-19 is not the first health crisis that's crippled the stock market, and while the entire planet is currently in panic mode, there's a good chance that once the rate of infection slows down, the market will slowly but surely start to pick back up. Or maybe not -- maybe it'll take several years for the stock market to recover its recent losses. That's a distinct possibility. But if you're planning to retire in a decade or longer, ultimately, it probably won't matter.
As such, the best thing you can really do for your retirement right now is to keep funding your 401(k) or IRA as you've been. In fact, now's actually a good time to ramp up your savings. The upside of social distancing is that it's harder to spend money when you're mostly confined to your home, so take the cash you'd otherwise blow on restaurants, movies, concerts, and other types of live entertainment, and instead add it to your retirement plan, especially since you have a prime opportunity to invest in quality stocks on the cheap.
That said, if you're going to be curbing your spending, it's not a bad idea to divert some of that extra money into a regular savings account, too. This especially holds true if you don't have a particularly robust emergency fund. But don't let the current bout of upheaval discourage you from saving for the future or lead you to believe that your retirement is doomed. If there's one thing history can teach us, it's that recovering from bear markets is more than possible, and if you do your best to stay calm and ride out the storm, you'll be doing your part to secure your financial future once this madness blows over.