In this video, we will explain why you should still contribute to your 401(k) EVEN when the stock market is down…

401k Down in 2022?

Show Notes:

• DFA – Market Returns through a Century of Recessions
• Vanguard – How America Saves 2021
• DFA – What Happens When You Fail at Market Timing

Full transcript:

SPEAKERS

Alex Okugawa & Matthew Calcagno

Alex Okugawa 0:00
Hey everyone, In this video, we will explain why you should still contribute to your 401k even if the stock market is down this year, stay tuned. Hey there, it’s Alex and Matt from One Degree Advisors. If you’re new here, we are certified financial planners that help folks with all things investment, tax, and retirement-related. Matt, we’ve all taken a look at our 401 K balances, especially as we head into the midpoint of the year. And if you’re a younger professional, typically, you’re going to be invested a little bit more aggressively, because you have that long time horizon. So you’ve most likely seen a larger loss in your 401k. So I think it’s a fair question to ask, Should I still contribute to my 401k if I think it’s going to continue to fall in value?

Matthew Calcagno 0:51
If you’re a little bit stressed, looking at your 401 K balance right now a little bit anxious? That’s completely understandable. We’re living through a time of high inflation, and pandemic, I mean, did I leave anything out?

Alex Okugawa 1:02
Maybe supply chain issues?

Matthew Calcagno 1:03
Oh, yeah, supply chain issues. Can’t forget about those. So you know, why would you want to contribute to a losing 401k? is an understandable question. But I offer this right, let’s let history be our guide because it can teach a lot about investing. So this is a great chart here by DFA showing the growth of $100 from 1926 to 2021. With the shaded areas being recessions, right. So especially during a war, economic downturns, and high inflationary periods, it can teach us a ton about investing. So I’ll link the interactive chart in the comments below.

Alex Okugawa 1:38
Staying consistently invested has worked extremely well, historically.

Matthew Calcagno 1:43
Exactly. So if you’re already contributing for Okay, not only should you stay invested, but you should also continue to contribute and get more shares at a lower price.

Alex Okugawa 1:51
And speaking of the point, that’s, you know, we made a video last week called why young investors should love bear markets, which we’ll link above there, people can watch that, of course, past performance is no guarantee of the future. Do we use history as our reference and kind of like our guideposts to say what should we be doing next? What should we be looking at? But let’s talk about the second very practical reason to make sure you’re continuing to contribute to your 401 K, which is you don’t want to lose your employer match.

Matthew Calcagno 2:21
Yeah, first of all, if you have a 401k, congratulations, that’s going to be the cornerstone to building wealth. And that is for a lot of Americans. So it’s an easy way to automate your investments each month out of your paycheck. And it can be even better and compounded if you’re getting an employer match, which is free money. So you know, let’s take a look at this here. So a recent Vanguard study showed that the average 401k match in 2020 was about 4.4 point 5% of someone’s salary, you know, that’s a good incentive to keep contributing to a 401 K, because that’s 1000s of dollars in free money over time.

Alex Okugawa 2:59
So here’s the thing. I mean, when we look at all this data, we look at the charts, I think, for some folks, they’re going to be in the camp of okay, I just needed the words of affirmation, I need to see the data that yes, I really should continue to contribute to my 401k. You’re going to the other camp, people that go well, I already stopped contributing, right? I stopped those automatic contributions. Well, now what do I do going forward? Like when do I start, I don’t want to miss time this thing where I don’t want to start putting money in and then my, my next statement comes down. Oh, great. I’ve already lost more money again. So what should folks do in that situation?

Matthew Calcagno 3:32
Well, here’s the thing. Trying to time the market is nearly impossible. And if I had a crystal box, I’d tell you the exact date and time to start buying but we don’t. So you know, I offer this let’s take a look at another chart by DFA that shows the impact that can be if you’re even out for out of the market for one short period, it shows that missing those best weeks and months of returns can have a pretty significant impact on returns. So unless you know exactly when the bottom is, it’s a fool’s errand to try to time the market.

Alex Okugawa 4:05
Well that’s the thing too, is that everyone wants to look for that green light, which there isn’t going to be the news, you’re gonna flip on the news and they’re gonna say, hey, look, everything’s rosy, everything looks great. Go ahead and start contributing again, that signal will not come out. So that’s really why having a disciplined investment approach to a financial plan, maybe an accountability partner, like a financial advisor can be so critical to make sure you stick with your plan for long-term success. And now let us know what you think. Are you nervous about your 401k being down in value? Drop a comment below. And if you enjoyed today’s video, please like and subscribe for more it helps us reach more people to provide free educational content to the masses. Thanks for watching.

Transcribed by https://otter.ai

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This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. Disclosures: https://onedegreeadvisors.com/solutions/#disclosures