- On the heels of an already bad year, 401(k) retirement account balances have taken a hit, but that makes it the best time to invest, an expert says.
- Bear markets are ideal for dollar cost averaging, according to CNBC advisory board member Louis Barajas.
A separate Vanguard analysis also found that average 401(k) balances fell 20% in 2022 to $112,572, and hardship withdrawals increased slightly.
“The concern is, in these uncertain times, am I continuing to add money to my long-term plans?” said Louis Barajas, CEO of International Private Wealth Advisors, Certified Financial Planner and CNBC Advisory Board Member.
In fact, “now is the best time to keep contributing.”
After double-digit losses in 2022 for the stock and bond markets, it’s understandable why some may be reluctant to continue investing, especially as fears of a banking crisis spread.
“Everyone wants to go out when there’s uncertainty,” Barajas said.
However, when investing for the long term, a bear market is an opportunity to buy stocks at a lower price, he added, a strategy known as dollar cost average, which helps smooth out price fluctuations in the market.
After a tumultuous time, many older Americans worry about their retirement security. Nearly half, 48%, of retired Americans believe they will outlive their savings, according to a separate report from Clever Real Estate.
At the same time, young investors could experience their first prolonged downturn. “We’ve had almost 12 years of market boom, all they’ve seen is markets go up,” Barajas said.
“Everyone is feeling financial pressure – there’s a lot of uncertainty in the markets and the economy,” said Mike Shamrell, vice president of thought leadership at Fidelity.
“A lot of people understand there will be ups and downs,” Shamrell added. “Don’t let short-term economic events derail your long-term retirement savings efforts.”
To that end, try increasing your 401(k) contribution percentage this year, Barajas advised.
Barajas recommends a savings rate of 15%, including employer and employee contributions. That’s slightly more than the current average, according to Fidelity.
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