What strategy do you recommend for how to contribute to one’s retirement plan while still working?
That’s a good question. I have asked Lorraine Rocamboli (a veteran financial Advisor on our team) to give us some insight from her 38 years of experience with servicing her clients.
THE POWER OF DOLLAR COST AVERAGING
After 38 years of setting up client portfolios to set them on a path to achieve their goals for retirement, college planning or just setting up a portfolio to establish wealth, there is one premise I believe that can never be violated if you want to achieve success. That is averaging your money into the market. In my opinion, if you have a 403(b), a 401K, 529, 457(b) and any other payroll deduction account that is the lowest risk and the best thing to do.
Often times I have had clients want to stop their contributions for some reason, it is usually because they are afraid the stock market will take a large correction. I have had to pull people back into the markets by explaining to them that because you have time on your side, buying through a down cycle is a golden opportunity to buy cheap. When the stores have a big Labor Day Sale, everyone goes out to buy something they were waiting to go on sale. Isn’t that the same thing as buying through the downs in the market? The trajectory of the stock market since its inception has always been up. Buying into the corrections is opportunity. If it is appropriate for your circumstance, don’t be afraid of it, embrace it. I love those corrections, and I always buy into those assets I am watching.
If you are dollar cost averaging into a 403(b)b or 401K. Look at this simple hypothetical illustration below:
If you put $200 per pay into your account and the-shares are selling at $50 per share. You purchased 4 shares. If the market starts to retreat and the next month the shares are selling for $40 per share, you bought 5 shares. Now the market continues to go down to $25 per share you bought 8 shares. Finally, the markets hits bottom at $10 per share. That time you bought 20 shares at $10 each. So in this demonstration you invested $800 and you purchased 37 shares at an average price of $21.62 per share.
So as long as you are a long term investor, and remain consistent and stay the course, you can increase your odds at achieving your financial goals.
The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of Capital Analysts or Lincoln Investment. The material presented is provided for informational purposes only. Nothing contained herein should be construed as a recommendation to buy or sell any securities. Past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss. Plan of regular investing does not assure a profit or protect against loss in a declining market. You should consider your financial ability to continue your purchases over an extended period of time. Projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.