When you’ve put a significant number of your financial eggs into the retirement account basket, it’s hard not to panic the moment a market downturn points things south. The whole point of long-term investments like IRAs and 401(k) accounts, after all, is their lengthy nature. You have to ride out the dips to reach the upswings.
Don’t let a knee-jerk reaction to downswings and doubts hamstring the growth of your retirement funds.
Knee-Jerk No. 1: Monitoring your investment performance monthly, weekly or even daily.
Long-term investments truly do mean ‘long’ — really, really long. If you’re constantly checking your retirement accounts and following the market on a continuous basis, you’re going to feel terrible when things take an inevitable downturn.”
Relax and trust that time will ultimately push things upward in your favor. Take a look at your retirement investments once or twice a year, and use those opportunities to reallocate anything that no longer seems to fit with your long-range strategy.
Knee-Jerk No. 2: Yanking your money out of stock-based investments and tucking them exclusively into money market accounts and other “safe” investments.
It may make sense to take a cautious approach with your retirement savings if you’re over 40 or 50, but if you’re younger than that, you need to take a deep breath and trust that the long-range trends will work in your favor.
A solid retirement plan should start off with a more aggressive approach when you’re younger, to give the market time to accumulate gains in your favor. As you get older, you can gradually shift more and more of your funds into safer investments to protect you against losses at retirement time. A so-called target-date retirement fund can do that for you automatically, allocating your money more conservatively as your retirement date draws near.
Staying the course will provide you the strongest return on your investment in the long run. As the popular saying might go in this case: Keep calm and invest on!