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What to Do With That 201(k)
We already recognize that for 40 years we won’t be working at a ‘job’, we’ll collect a pension and a gold watch and live happily ever after, like some of our parents and grandparents. But what are we doing about it? We will have an average of 7 careers during which we will be responsible for our own retirement savings. 401(k) plans are plans that were created to be portable, so they can move with us, from job to job, career to career. However, guess what? We have to fund them!
I know many people are very focused on their 401(k)a having been reduced to a proverbial 201(k) these days and take every opportunity to bemoan this fact, seemingly using it as a ready excuse to suspend or reduce savings. mentioned plans.
Guess when is the BEST time to invest in any systematic investment plan? When prices drop directly! Yes, it seems a little counterintuitive, but I always tell people who invest money every week or month that what they want is a bear market. You see, a bear market makes the price of investments cheaper, so you buy more stocks each week or month. This systematic saving game is ALL about accumulating SHARES. The price every day is superfluous.
Let’s say you’re investing $400 a month, that’s less than $100 a week, and your 401(k) investment price is $10 per share. In the first month you buy 40 shares ($400. divided by $10=40 shares). Let’s say the price dropped to $8 per share in the second month and you still invested $400. You will buy 50 shares during this second month ($400 divided by $8 = 50). In the third month, the price drops to $5 per share and you bought 80 shares. See how your PARTS multiply like rabbits?
When the rest of the world is complaining about how the stock price went from $10 to $5, and most people’s investments did NOT drop 50%, you laugh at how many more stocks you just picked up !
Since we save for the future, and within a retirement plan, most of us are saving for at least 5 years, the share price will go through high prices and low prices during those years, so my advice is keep saving [http://www.msmorrisonspeaks.com/money/2008/12/tips-on-how-to-save-money.html] every week or month, systematically, preferably the payroll deducted. The mistake that novice investors make, of course, is to stop saving when the stock price drops, out of ignorance, I guess, because they wouldn’t stop if they knew the math you know now, would they? (The technical term for this systematic savings at variable prices is dollar cost averaging.)
So play like a chipmunk and save for the future, and forget about the prices for now… just plow those dollars like your lives depended on it, because they do. Trust me when I say, you can afford to invest now. Remember, you didn’t think you could pay more than $3 a gallon for gas either, and we all did.
Unless we die prematurely, we are all slowly marching towards our own future. Let’s seed them with as many weekly and monthly retirement savings as we can right now. Soon I will show you the miracle of composition, and you will not believe your eyes. In the meantime, think about your and your family’s future and plant the seeds now.
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