Your retirement account-Is it on life support? If you attached a pulse ox would the alarm go off-O2 sat near zero? Have you given up on your retirement account as a no-code? Would a state inspector, after a review of your statement suggest you call hospice? Or are you like most-just afraid to look at your 401-k, IRA or other retirement account statements?
I know, too many medical references for one paragraph, but remember, this is The Millionaire Nurse Blog. We are supposed to speak medicalese. If you want to get a free e-book on Emergency Money Resucitation go to my website The Millionaire Nurse, sign up for the free ebook and you will also receive a free mini-course on managing your personal finances.
An article in today’s Wall Street Journal, by Karen Blumenthal discusses the fact that many balances in retirement accounts are not as bad off as one would fear. Why is that?
One of my precepts in teaching personal finance (not an original thought of course) is to pay yourself first. How does that relate to retirement accounts?
The way to accumulate wealth in your retirement account is to put a certain sum into the account, automatically, out of your paycheck each month. After paying off your debts, you want to gradually increase the amount deposited monthly until you reach 15% of your income.
The devastating drop in all investment accounts over the past 18 months is terrible of course. But if you have continued the monthly contribution since the first of the year, the increase of the value of those new deposits may have almost completely made up for the losses in your account from the market drop last year.
In an example described in the above article, many accounts were down less than 10% with some actually being up a small percentage over the past three years. So ignore the doomsayers and stick with your plan.
Mathematically this occurs because of dollar cost averaging. This means you bought stocks this year while they were on sale, and your new money is up significantly. Those people who stopped contributing because of fear have not had that rebound, and they are still hurting big time.
So the moral of the story is, you can’t predict the future direction of your investments, so don’t try. Put your money into your account, and let it grow, tax free. Take the bad years along with the good.
Make sure you are taking full advantage of any matching by your employer-if you don’t know, call your benefit’s manager at work tomorrow and ask.
The road to rich’s is paved by long term savings, so please take advantage of compound interest. Remove the No-Code order on your retirement accounts, and let them grow!
Let me know your thoughts, comments, and any questions about your retirement account and the market rebound this year.
Great article. Definitely a fan of dollar cost averaging and NOW is always a great time to be in the market. You are right on with the “stick to your plan” approach.