Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, but our reporting and recommendations are always independent and objective.
- I didn’t start investing or saving for retirement until my early 30s, and now I’m eager to catch up on the earnings I’ve missed.
- When the stock market dropped this week, I thought it would be smart to add money to my investment account; after talking to a financial professional, I decided to tripled the amount of money I had already invested.
- I was a bit more cautious about adding to my SEP IRA since that money will be locked up for years, but I ultimately doubled the amount I’ve added to that account to take advantage of stocks while they’re “on sale.”
- A financial planner can help you set a smart investment strategy. Use SmartAsset’s free tool to connect with a qualified professional »
I was a late bloomer with all things finance. I spent much of my 20s making mistakes with money instead of making any real plans for how to grow my savings and stay out of debt.
A few years ago, when I turned 30, I decided it was time to catch up and open up a retirement fund and take money that was hardly growing in my low-interest savings account (a mistake I quickly remedied by switching to a high-yield account) and put some of it into the market.
At first, I was extra cautious. I didn’t understand the market or what I was doing so I invested only a couple thousand dollars in stocks that I valued and felt comfortable investing in. But all of that changed over the last few weeks when news of the coronavirus and the oil war prompted the market to drop dramatically.
After seeking advice from financial experts, I made the decision, late last week, to nearly triple the amount of money I had already invested in the stock market, and double the amount I’d added to my SEP IRA (a retirement fund for those who are self-employed).
The expert advice that changed my mind
I spoke to Fred Egler, a certified financial planner at Betterment, and he explained that while it might be nerve-wracking to look at recent market behavior and its impact on your investments, now is still a good time to invest for the long term.
“That’s because over very long periods of time, say, a retirement time horizon of over 20 years, the market generally tends to combat short-term volatility and tick upwards,” said Egler. “What’s more, timing the market is extremely difficult: If you stop investing now, how will you know when to start investing again? It’s almost impossible to get that right.”
Since I’m only in my early 30s and don’t need to pull my money out of my investments right now, I feel confident adding money to investments I don’t need to touch for at least another decade, likely several decades.
If emergency does strike in my personal life (unemployment or health issues, etc.) I do have emergency funds stashed away in savings accounts, so there’s no risk attached to that money.
Volatility is to be expected with investing of any kind
Egler also reminded me that market volatility is normal and all a part of the investing game.
“Obviously, no one wants to see their portfolio lose value. However, these periods of volatility are part of investing. On the point of timing the market, remember that no one is really certain when the market will have a good day, and missing out on those good days can be quite detrimental to building wealth,” Egler said. “This is evident in recent history, such as the period between 1993 and 2013, where the S&P 500 had an annualized return of 9.2%. If you missed the 10 best market days during that time period, you would have basically cut your returns in half.”
Some investors feel the urgent need to pour money into the market when it’s in a “bear” stage, an investing term for when the market is facing a downward spiral, since you stand to make more money if you buy shares while they’re “on sale.”
Said Egler, “If you keep putting money in the market now, you can benefit through buying more underweight shares.”
I was a little more nervous about adding to my SEP IRA
These tips and a general understanding of the market made me feel better about tripling how much money I had in my brokerage account. But when it came to adding 50% more funds to my SEP IRA this year, I found myself doubting if this was the best strategy, since that money would be untouchable for over 30 years.
Joe Crowley, an investment adviser at Exchange Capital Management, explained that investing in retirement accounts, like the SEP IRA that I have, has benefits whether the market is up or down, especially around tax season.
“Adding funds to retirement accounts, such as 401(k)s or SEP IRAs, will allow investors to defer paying taxes into the future,” says Crowley. “Any trades placed inside of tax-sheltered retirement accounts will not trigger a capital gains tax. Therefore, if certain investments recover faster than others, you’re able to reallocate the account without an immediate tax consequence.”
I ultimately decided to double the amount I already had in my SEP IRA, and while the decision made me feel anxious and stressed, I found that adding more money to my investment and retirement funds fit my long-term plan and worked best for me.
Talk to a financial planner today about your retirement strategy. SmartAsset’s free tool can connect you with a qualified professional »
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
