401k News and Investing October 2023

When I started working on Wall Street, a renowned portfolio manager at the investment firm I worked at said that the market creates the opportunity and successful investors take advantage of the buying opportunity. Those opportunities mostly come when markets are volatile or in a major market sell-off. The headlines surrounding those opportunities are always bleak. Experienced investors like Warren Buffet, one of the greatest investors of all time, believes a particularly suitable time to invest in the stock market is when there is fear. He is known for saying "Be fearful when others are greedy, and greedy when others are fearful." At a certain point, the fearful news gets discounted into stock prices and stocks become a bargain and even relatively less risky.

Historically, down markets, when valuations reach an attractive level, have been an opportunity to buy quality investments caught up in a sell-off. Long-term investors take advantage of it by accumulating shares in quality stock investments looking forward to better times ahead. The lower the stock valuation becomes the better the opportunities to profit. Barron Rothschild. A billionaire himself in today’s term, said that "the time to buy is when there's blood in the streets." 401-k investors do not have to go to that extreme to buy. Instead, just view down markets as an opportunity to buy on weakness, accumulate more shares while they are lower, in quality growth investments. Markets may present buying opportunities for investors with a long-term horizon, but it is not without risk, investors can still lose money, and it may take a lengthy period to pay off.

The best way I know to invest when there is price weakness is to use the Dollar-Cost-Average strategy. Dollar-Cost Averaging requires a disciplined approach to investing a fixed amount of money at regular intervals to an investment. You buy more shares when prices are lower and fewer shares when prices are higher. And over time, your average cost per share may be less than the average price per share. Dollar-cost averaging involves a continuous, unemotional investment in growth-oriented investments, 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 the stock market is volatile. Investors become emotional and scared causing them to be extremely short-term minded anchored to current headlines and lose their long-term perspective. Investors must accept a temporary loss in value to benefit from Dollar-Cost-Averaging. Choosing suitable investments for the long term is also a factor that helps investors to have a rewarding outcome.

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. Every Bull market starts at the bottom of every Bear market when the news is bleak. Moreover, investment returns are highest in the first few months of the new Bull market when most investors are still Bearish. Although short-term volatility and losses can be disturbing and frustrating, it is important for long-term investors to look through the losses and focus on accumulating more shares by reinvesting dividends and dollar-cost-averaging their 401-k bi-weekly contributions.

Investors must keep a long-term perspective and try not to panic sell at market lows. A typical Bear market associated with a garden variety recession bottom on average in about 11 months according to CFRA. Historically, the S&P 500 Index has risen seventy percent of the time and has been in a down market thirty percent of the time. It pays to be long term. 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. The way to build your account value is to contribute regularly through ups-and-downs of the market, give your investments time to grow, and include investments that have growth potential in your 401 (k) account. For specific advice and guidance for your goal and circumstances, please contact Patrick Byrne, Investment Adviser, Aspetuck, for help.

The information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Information presented is also dated material and may be out of date or obsolete after the date of publication. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Any client examples were hypothetical and used to demonstrate a concept.

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The market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index. The S&P 500 Index is a market capitalization-weighted index based on the results of approximately 500 widely held common stocks. The S&P 500 is a product of S&P Dow Jones Indices LLC and/or its affiliates.

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