Have you ever had the experience of seeing all your 401(k) contributions go up in smoke during a bad market cycle? You look at your statement, and it seems like you’ve made no progress at all… Everything you contributed has been swallowed up by losses, and you feel as if your contributions aren’t helping at all.
Let me encourage you to look at what’s happening in a different way so that you don’t give up and throw in the towel.
It’s important to understand what is happening when you contribute money to your company retirement plan. Although it may appear that your contributions are “disappearing”, in fact they are not. Every single time you contribute to your company retirement plan you are purchasing more shares of your investments. Each share that you purchase has a value that fluctuates every single day.
So if you contribute $10,000 for the year and you lose $10,000 on your investment account statement, it doesn’t mean that the $10,000 of contributions is the same as the $10,000 of market loss. The $10,000 of contributions ALL went to purchasing more shares of the investments. The $10,000 of investment loss represents a proportional decrease in the share value of every single share that you own of the investment.
So the $10,000 of contributions (or whatever amount you’re contributing) does not “go up in smoke”. You are, in essence, adding more shares paycheck by paycheck.
Later on when the share value rebounds, all of your contributions that purchased more shares will also go up proportionally.
So don’t allow short-term market loss to dissuade you from the amount you contribute or whether or not you contribute to your company retirement plan.
If you have any questions please feel free to contact me.