Why Baby Boomers Should Keep Investing in the Stock Market
You probably think I am nuts. You just lost a bunch of money by having your 401(k)/IRA invested in the stock market. But now is the best time to keep investing. For some of us, who are on the verge of retirement, it may be too late, because you are done investing, or need the money as income. For the rest, take advantage of this opportunity: It’s called “dollar cost averaging.”
Your contributions to your 401(k)/IRA will buy you more shares of mutual funds or stocks/bonds now. In part, it’s the principle of “buy low/sell high.” I know we all missed the boat on that “sell high” thing, but we can definitely get into the “buy low” thing.
Dollar cost averaging says you keep investing the same amount. This evens out your returns. Simple example:
If you invested $1000 in Blue Chip Mutual Fund a year ago at $50 a share, your investment would have given you 20 shares.
If you invest $1000 in Blue Chip Mutual Fund today at $30 a share, your investment gives you 33.34 shares.
You can see that your investment today gets you a bigger piece of the “pie.” As prices rise (and they will, over time), your shares will increase in price. More shares, more total investment.
For more information on how this works, check out Joshua Kennon’s Beginner Investment Guide Site on About.com
1 Comment
These recomendations are always instigated by people who will make a buck on it — we still don’t know if we have seen the ‘bottom’.
I moved into cash in FEb and almost started dollar cost averaging back in in July — am I ever glad I didn’t!