These are uncertain times we're experiencing, and nearly everyone has had their lives disrupted in some way as a result of the coronavirus pandemic. More than 90% of Americans are worried about the effect COVID-19 will have on the U.S. economy, according to research from SurveyMonkey, with millions of workers watching their retirement savings plummet.
When the market is in a free fall, it can be tempting to pull all your cash out of your retirement fund in an attempt to salvage whatever money you have left. However, right now it may be a smart move to do the opposite and actually invest more in the stock market.
Of course, not everyone can afford to invest right now. If you've lost your source of income and are simply trying to keep your head above water, it might be better to focus on paying the bills and establishing an emergency fund. But if you have cash to spare, investing it may be a wise move for these three reasons.
1. The stock market is on sale right now
When the market falls, so do stock prices. That means that by investing during a market downturn, you can get more for your money because stock prices are at rock bottom. You've probably heard about the concept of buying low and selling high, and right now is the perfect opportunity to buy low.
It may take a while before the stock market fully recovers, but it should bounce back eventually. The economy will always experience ups and downs (some worse than others), but if history shows us anything, it's that the market will recover given enough time.
By investing now when prices are low, you'll be setting your savings up for significant gains when the stock market does eventually recover. And hopefully by the time you're ready to retire and withdraw your cash from your retirement account, your investments will be worth much more than they are now. In other words, buy low now so you can sell high later.
2. You can avoid decisions fueled by emotion
One of the most challenging aspects of investing is sitting on the sidelines watching your savings take a nosedive and knowing there's nothing you can do about it. It's human nature to want to do something to help your investments, but unfortunately, sometimes the best thing you can do is nothing.
If you let your emotions fuel your decisions, there's a chance that could end up doing more harm than good. You might choose to withdraw your savings from your retirement fund or quit investing altogether because it feels less risky than continuing to invest, but in reality, those could be costly mistakes.
Instead, convince yourself to keep investing consistently no matter what the market does. Delete your retirement account app from your phone or log out of the website to avoid feeling disheartened about your account balance, and keep reminding yourself that although things may not look pretty now, they will get better.
3. Adjusting is better than quitting
As you get closer to retirement age, you should be adjusting your asset allocation to ensure your investments align with your risk tolerance. Older workers should be investing more heavily in conservative investments like bonds rather than riskier assets such as stocks, because you never know when a recession will strike, and you want your savings to be protected before the stock market crashes.
But what should you do when the market has already crashed and you're realizing you haven't been conservative enough with your investments? For right now, the best option may be to simply stay the course. Adjusting your portfolio to ultra-conservative investments now would potentially leave you never seeing your savings bounce back from its losses. Once the market does start to recover, though, it's better to start investing more conservatively than to stop investing altogether. That way, your money will be as protected as possible against future market downturns, but you'll still be building wealth.
Keep in mind, though, that even older investors should usually invest at least some money in stocks. Even if you're in your 60s, you'll still want your investments to continue growing for at least a couple more decades throughout retirement. While it may be ideal to have most of your money in more conservative investments, it's wise to avoid giving up stocks altogether if you want to continue seeing long-term growth.
If you're feeling worried about your retirement investments, that's perfectly normal. But remember that historically, the market has always bounced back after even the worst recessions. It will recover this time too. And by continuing to invest now, you'll reap the rewards later.