Submitted by Lobster_osity t3_z72aql in personalfinance
Other than my employer match and presumed tax savings later in life, which I understand, it seems like I'm just losing money.
Maybe I should limit my contribution to the employer match? And put the rest in high yield savings account?
Gotcha. So basically, stick with it because if you don't you'll miss returns (if/when the market turns around)?
Is that type of YTD loss normal?
I can afford the max yearly contribution, so I guess I'll keep doing that.
This type of YTD loss is nowhere near as bad as it can get, and yes, single calendar-year losses of 10-20% are normal over the long haul.
I lost half my retirement accounts' value in 2008 and 2009, but I kept contributing. From 2010 onward, the bull market rewarded me handsomely for staying in. I'm still far, far ahead of a HYSA over the same time period.
Wow, interesting to hear from someone who stuck through the 2008-9 crash. Thank you!
^^ This top comment is basically all you need OP. It’s that simple. Not only will you miss the rebound, you’ll never be able to sell right at the top either, so you’ll sell and then miss gains a lot of the time. Set and forget for 40 years. If the negative number is getting you down, try looking at the number of shares you own - that number goes up faster if the market is down!
The market will turn around. Look at a max historical yearly return chart. It goes up with some (sometimes big) dips. "If" the market does not turn around we have bigger issues at hand, like a dystopian future on the short horizon.
Age or big purchases are also a factor though. If I were about to buy a house I'd pull out into cash because there's less time for a recovery before I buy. Or if I'm about to retire I'd move investments away from stocks /growth stocks and into something more conservative.
But that's just me.
You are putting your money there because over time (10-20-30 years) the stock market has historically returned more than any other asset class. So yes, the market is down ~20% this year. A lot of technology stocks are down 60-70-80% this year. It happens. If you are in your 20s, 30s, 40s who cares? You should actually want the stock market to drop so your money buys more shares and over the long term (decades) more shares = more gains.
Retirement accounts have tax benefits like allowing your money to grow tax free. And if you are using Roth 401k or Roth IRA then not only does your money grow tax free but it is also tax free when you take it out in retirement. That is a big benefit.
So as long as you aren't a few years away from retirement and you are invested in a good diversified mix (hopefully a total stock market index fund or an S&P 500 fund or a target date fund) with low expense ratio then just stay the course.
PS - I would contribute to 401k up to the point of the max company match and then switch to maxing out a Roth IRA. Invest the Roth IRA in a total stock market index fund like VTI.
OK, I am getting that I am being too short sighted. A little unnerving putting that much money into such a long term investment, but that's what saving for retirement is I guess!
The 401K is a diversified portfolio. I went through the options with the broker and picked one with investment objective-- moderate growth. Has a mix of cash alternatives, fixed income and equities.
I will look into the roth IRA thing.
Thank you!
FYI - you didn't say your age but unless you are in your mid to late 50s your "moderate growth" portfolio is likely way too conservative. In your 20s/30s/40s there really isn't any reason not to be 100% stocks. Certainly no cash. Cash would just be sitting there earning probably less than 0.05%. Why? You might feel more comfortable with a more conservative approach, but just realize being too conservative is actually a category of risk onto itself. You need the money growing and compounding to keep pace with inflation.
Wow, I didn't think about it like that.
I am early 30's.
Maybe I'll talk to my broker about transitioning to a more aggressive approach.
Yeah, early 30s I'd be 100% stocks. I'm skeptical of what this "broker" is doing for you. Likely he/she is just adding fees that you don't need to be paying. Literally all you need to do is select a target date fund that your 401k plan offers or better would be a total stock market index fund. If you don't have either of those two options then an S&P 500 fund. If you are paying any kind of extra fee to this broker then I'd axe that ASAP. Fees, like growth, compound and add up over time. Paying an extra 1% fee over 30 or 40 years will eat up something like 30-40% of your gains over time.
Honestly I think he was just hearing and responding to my hesitancy to be aggressive when I first set it up. When I started I wasn't sure how my commissions would go and my emergency savings were slight-- I was afraid I might need to pull out at some point and with market trending downward, my instruction to him was to keep alot of it in cash.
In hindsight, my commissions have been better than expected and I built up my emergency fund and I don't expect any type of early withdrawal even if I lost my job today.
Hey, maybe it's a blessing in disguise-- I can use that cash to purchase more stocks than I could have at the beginning of this year!
Trying to look into the fee schedule right now. This is where my online account sends me when I click fees: https://saf.wellsfargoadvisors.com/emx/dctm/Marketing/Marketing_Materials/Image/e6748.pdf
I have a feeling my employer would be wise enough to not have a crappy one-- it's a small business and the owners are personally invested in the 401(k) as well.
Stocks go up and down. You need to measure performance in decades not 11 months.
A savings account is not going to generate anywhere near enough growth to let you retire. Until recently, rates were like 1% on HYSA.
OK. It's a little unnerving investing in decades. What if when I retire the market is shit?
I am guessing the answer is that in the meantime, there will have been enough gains that even if that happens it will still have been worth it. I am in my early 30's.
Thank you!
This is another reason that target date funds are helpful. They automatically shift allocations to less risky assets as you near the titular year. Set it and forget it.
A shit market 35 years from now will be better than the highest peak we’ve experienced so far.
> What if when I retire the market is shit?
You might still have a lot more in your account than what you contributed over the next 20-30 years.
If the market doubles every 10 years for 30 years and then you lose 50% a year later, you're still ahead 4x. That's better than a savings account in the long run.
> What if when I retire the market is shit? > >
With any luck you'll have 15-30+ years after your retirement date to recover some of those losses. And, it will probably be wise to lower your exposure to the stock market as you get close to your target retirement date.
Right, that makes sense. I guess I didn't really think about the fact that you don't cash it out all at once when you retire. Thank you for the perspective!
As you get closer to retirement, you shift your asset allocation away (not completely) from stocks and more towards bonds/fixed income/etc. You also don't withdraw your whole account at once. Most of your money stays invested.
If you have enough saved you can retire in a downturn and weather it fine. It just takes good planning
I said in another comment that I didn't really think about the fact that you don't cash it out all at once when you retire. Thank you for the perspective!
Generally speaking the markets do not feature negative returns year after year. Historical evidence gives us relative confidence that eventually the money in the market will outperform a HYSA.
And because you are unlikely to be able to accurately time the market reliably, investing into the down period is at least getting your money into the market at a relative discount.
Because your buying at a substantial discount. This is how real estate investors win.....they never buy when the market is going up.
In times like these, just remember the simple etf SPY returned like 400% from 2000 to 2020. And that was just price appreciation and does not include dividends. We had several market crashes during that period as well.
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if you would have started 2 years ago, your returns would be -25%...
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Ummm…I invested in a mutual fund (VTI) two years ago and my returns are 50%. There was no better time in recent history to invest than March-Nov 2020.
french-fry-fingers t1_iy4aar4 wrote
Because long-term average return is around 10%. If you pull out when down you miss the rebounds. When the market is down is when you buy more.