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401 (k) News and Investing Fall 2022

401 (k) News and Investing Fall 2022

401(k) Investing During a Bear Market. Dollar-cost averaging is a way to turn stock market weakness into a positive for long term 401(k) investors. Most people are quick to agree that volatile markets may present buying opportunities for investors with a long-term horizon. But mustering the discipline to make purchases during a volatile market can be difficult. You cannot help wondering, “Is this really the right time to buy?”.

Dollar-cost averaging can help reduce anxiety about the investment process. Simply put, dollar- cost averaging is committing a fixed amount of money at regular intervals to an investment. You buy more shares when prices are low and fewer shares when prices are high. And over time, your average cost per share may be less than the average price per share. Dollar-cost averaging involves a continuous, disciplined investment in ETF shares, regardless of fluctuating price levels. Investors should consider their financial ability to continue purchases through periods of low-price levels or changing economic conditions. Such a plan does not guarantee a profit or eliminate risk, nor does it protect against loss in a declining market.

It is hard to invest when stock market is volatile but that is what legendary investors have done. Sir John Templeton said, “To buy when others are despondently selling and to sell when others are avidly buying requires the greatest fortitude and pays the greatest rewards.” Although short-term volatility swings can be difficult to stomach, it is important for long-term investors to persevere. While it may be tempting to pull out of the stock market, investors may miss a potential market rebound and opportunity for gains while they are on the sidelines. When stock prices fall, it can be a potential long-term buying opportunity. Despite intra-year volatility, the S&P 500 Index had positive year-end total returns 25 out of the last 30 years ending December 31, 2021, according to a Franklin Templeton study. The stock market usually experiences an up year after a down year. Although rarer, sometimes it has back-to-back down years.

History shows investors have gone with the crowd based on emotions, rather than a sound investing strategy. Your 401(k) plan automatically dollar-cost-average into investments through its bi-weekly payroll contributions. Just make sure contributions invest in equity ETFs and not a cash like investment if you want to fully take advantage of stock market volatility.

The pain we associate with a loss is much more intense than the reward felt from a gain. Fear drives investors into cash and stops investors from buying in Bear markets. For most investors, the primary goal is to avoid a decline in the value of their investments. When markets do take a step back, investors often react by flocking to cash or cash equivalents. To grow your 401(k)-value overtime, investors must accept market fluctuations and down markets. Two thirds of the time the stock market is in a Bull market, the other third in a down markets. A typical Bear market associated with a garden variety recession bottom on average in about 11 months according to CFRA. From the bottom the returns are greatest going forward. Dollar-Cost-Averaging throughout the Bear market, and ignoring paper losses, is a strategy that seeks to capitalize on market weakness by accumulating more shares of your favorite investments. That is the unseen benefit of down markets.

Last tip, the way to build your account value is to contribute regularly through ups-and-downs of the market, give your investments time to grow at least 3-5 years, and invest in investments that have growth potential. Risk aversion results in return aversion. Investors must take risks to grow account value over meaningful time periods. Please contact Patrick Byrne, Investment Adviser, Aspetuck Financial Management, at, if you would like specific educational advice & guidance that’s suitable for your circumstances and goals.
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