Saving for retirement is like a long journey. On this journey, a declining stock market can work to your advantage if you take the opportunity.
A declining stock market is a chance to buy cheap; a time when stocks go “on sale.” If the stock of a great company drops in price by half, you can buy twice the number of shares. When it eventually recovers, you have twice the wealth.
“Dollar cost averaging” is an old technique that has been used by patient investors who put a fixed amount of money into their portfolios in good markets and bad. It allows them to buy more shares when the market is cheap and fewer shares when the market’s expensive.
When workers put a fixed amount of money into their 401(k) plan this is exactly what they are doing.
Even people who are no longer adding money to their portfolios can take advantage of market fluctuations. By rebalancing their portfolios regularly they buy more of what’s cheap and sell some of what’s expensive.
Taking advantage of these opportunities requires three things:
- Patience to view your goals from a long-term perspective.
- Keeping the emotions of greed and fear out of your investment decisions.
- Adding to your portfolio with regular contributions and strategic rebalancing.
Millions of people are using this approach to achieve their long-term savings strategy. Using market declines to buy allows people to accumulate more money for retirement. If you need help with patience, emotions, or investment strategies contact an RIA like Korving & Company.
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