Now Is Not The Time To Quit Investing For Retirement

by Hank Coleman

Many people are very discouraged from investing after our latest bear market and subsequent recession that followed. Now, the markets are slowly starting to pick up steam. We have seen an incredible increase in the S&P 500 index and other markets since the lows in March 2009, but many investors missed those rises because they were sitting on the sidelines scared. In fact, it is estimated that billions pulled out of the stock market and mutual funds during the lows last spring. And, that money has been slow to trickle back into the market again for fear of another collapse.

So, many people have sold a lot of their investments at the low point in the market, sat out of the fantastic recent gains, and are poised to buy stocks and mutual fund shares at what is now a 52 week high point. This unfortunate timing is counter exactly what why try and accomplish as investors, “Buy low and sell high”.

I was recently inspired by reading David Bach’s new book, “Start Over, Finish Rich…10 Steps to Get You Back On Track In 2010.”  Bach is one of my favorite authors.  He wrote the incredible book, “The Automatic Millionaire“ which should be on every investor, saver, parent, American, etc. bookshelf. It is one of my top ten personal finance books that every person should read.

Start Over, Finish Rich“ gets right to the heart of not quitting or giving up on your investments.  So, here are a few of my thoughts on keeping the faith in the markets and how we keep going from here with our investments.

Dollar Cost Averaging.  Now that you are potentially out of the stock market or not investing in mutual funds, how do you get back in? One way is to invest a little bit of your paycheck every month. Dollar cost averaging is an investing method where you invest at set amount of money every month. Some months you buy only a few shares when the share price is high, but other months you buy more shares when their price takes a dip. Over time, this method averages the price out hence its name of dollar cost averaging. When you automate this investing, it takes the guess work and emotion out of when to invest in an asset.

Max Out Your Roth IRA.  One way to get back into the swing of things with investing is to get back to the basics like maxing out your Roth IRA if you qualify to invest in one.  If you earn less than $105,000 for single tax filers or $166,000 if filing jointly, you can contribute up to $5,000 per year into a Roth IRA account with after tax dollars. The principle, capital gains, interest, and any dividends earned can be withdrawn in retirement tax free after you are 59 ½ years old. Investors over 50 years old can invest up to $6,000 per year. The extra grand is a catch up payment. Each person can invest up to the limit. So, a young couple can deposit $10,000 into a Roth IRA.  For those of you dollar cost averaging, maxing out your Roth IRA translates into a $415 monthly investment.

Invest To Earn 401-k Match.  If you do not invest enough into your employer’s 401-k plan to earn any matching contributions, then you are just leaving free money on the table. If your company matches your contributions up to the first 3% of the money you invest, for example, you need to continue investing at least 3% in order to earn that matching contribution. 3% plus another 3% is a 100% return on your investment. You will not see those kind of returns too many places, and it is guaranteed. You should invest enough to capture your company’s match.

What Else Are You Going To Do?  What else can you do? You cannot just stop investing despite your troubles. Not investing at all is a far worse course of action than continuing to invest despite the markets up and down swings.

Now is the time to continue investing. It stinks if you have been sitting on the sidelines of the markets while stock and mutual funds have been slowly rebounding. But, 2010 is a new year. Now is the time to take charge of your investments. Now is the time to keep going and not give up. Get back into the market today!

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