This week’s stock market convulsions show why you shouldn’t worry too much about your 401(k)

• The stock market this week had a scary day on Monday and a great day on Thursday.

• Temporary dips are a normal part of the stock market cycle.

• Long-term investments in the market generally recover after the crisis, a financial planner said.

Monday’s stock market slide was sparked in part by an increase in panicked speculation about an impending recession — and with it came fears about what the selloff could mean for retirement accounts like 401( k)s, which are often heavily invested in stocks.

But by Thursday, the headlines were singing a different tune as the S&P 500 had its best day since 2022, the Dow had its best day in three weeks and the Nasdaq was up nearly 3% by the end of the day.

So what do such wild swings mean for those stressing what stock market ups and downs mean for their investments?

“Temporary market declines are entirely normal and expected,” Gideon Drucker, president and financial planner at Drucker Wealth, told Business Insider in an email Tuesday morning after the market plunge.

“In fact, that’s what we all sign up for when we invest in the stock market,” he said, adding that on average the stock market loses money once every four years and you can even expect swings of more than 14 percent.

According to data compiled by New York University finance professor Aswath Damodaran, over the 95-year period 1928-2023, the value of investments in the S&P 500 declined in 25 of those years. That’s about one in four.

“However, the stock market has made money in every 15-year period in history and significantly outperformed inflation over the long term,” Drucker said, “and that’s why we invest.”

He added that as long as you have your short-term savings and emergency fund set up properly, dips in stock prices can be a good time to buy. One way to see this is that the shares of some of the world’s most valuable companies are being offered at a discount.

“For someone in the accumulation phase of life, the more these prices fall, the more attractive long-term holdings in these companies become,” he said.

The worst thing you could do during a recession is panic and sell your stock investments, Drucker said, adding, “There hasn’t been a single market correction in history that you’ve benefited from from the sale of equity positions”.

He added: “Selling is literally the only way you can turn a temporary decline into a permanent loss.”

The story continues

In other words, as long as you have enough cash on hand to be comfortable and take care of your needs, even in the event of a major market downturn, you shouldn’t worry—and it’s good to remember that you are in it for the long haul.

Because, all in all, a long-term bet on the US economy is generally a safe one.

Read the original article on Business Insider