Market turbulence and your 401k
You want to sell high and buy low, so there’s always that little bit of fear of missing out. There was turbulence and then a powerful bounce on Tuesday. Wall Street nicely said it has “given hope to the bulls” that the market has perhaps begun to find a bottom.
People (and computers) are taking their profits and you’re seeing the aftermath, but what are you supposed to do? When you hear about market turbulence enroute or you see it happening, then what? Is it too late?
Here are things you need to know to fortify yourself, so that you can remove emotion from the investor equation.
Don’t put your eggs in one basket. No matter how fabulous. Spread it out. Having a good asset mix will allow you to spread your risk--or another way of saying this: gives you better odds of steady gains.
Dollar Cost Averaging
This is the simple math concept, let’s call it a technique, of buying on a scheduled interval rather than all at once. When you set your deferrals up for your 401k contributions, you are essentially doing just that!
You may hit some low and get to buy at a lower price and you may hit some high, but you are not trying to time the market. In the long run, you can build your assets over time regardless of how the market performs just because you are mitigating that market risk.
Know what you are investing in
You may or may not count yourself a savvy investor, but that should not stop you from investing, nor should that stop you from investigating. Know what you are investing in. Learn what you can about what you are investing in and follow it. Are there other classes of that same fund that are cheaper? How have they been performing over the last 3, 5 and 10 years? You are not invested in that many funds in your 401k most likely, so this is not a lot of homework. You could knock this out in no time.
Fortify your investments by applying all three concepts to your personal strategy.