Business & Finance Investing & Financial Markets

How To Invest For Retirement During A Recession

We all know how vitally important it is to put aside some money for retirement. But it's not enough to simply stick some money under the mattress or even leave it in a savings account at a bank, you need to invested in the stock market because otherwise inflation will reduce the value of your money and you may no longer be able to support yourself during retirement like you thought you'd be able to.

The problem is, for the last year or so here in America, and in fact around the world, we've been in the midst of a terrible recession. In fact this may be the most destructive recession that we've ever had since the Great Depression.

This makes it incredibly difficult for any rational person to invest in the stock market because during times of recession the stock market seems to act like a wild creature. Some days it's up, most days it's down, and it never seems to be acting rationally in any sense of the word.

So what do you do? If you weren't paying attention and got caught at the beginning of the drop in the market, your past investment value may have plummeted and if you haven't started investing at, it will be very difficult to start with the market behaving the way it. Basically you have two options.

The first option is to pull out all your money and simply wait. If history is any guide, this recession will eventually end and the stock market will return to a more normal footing. If you're getting close to retirement age and you're worried about your nest egg, the best thing to do may be to just sit it out on the sidelines for a while. After all, it's better safe than sorry.

The second option is to dive back in, as crazy as that may sound. The stock market usually drops after it has become overvalued. This means that stocks have gone up higher than they really should. We call it a market correction and it's just a nicer way of putting it.

The benefit though is that if the stock market has gone down dramatically, it may be a good time to buy if you believe that the bottom is near. The problem is, trying to time the bottom is nearly impossible, even for seasoned professional investors. So what should you do?

I believe that you should put math to work on your side. Use the law of averages. Select a number, an amount that you would like to invest every single month. Maybe it's $100 a month, maybe it's $1000 a month, maybe a $5000 a month. The trick is to keep the number constant.

Next, take this amount and invest it on the same day every month automatically (no matter what) into an S&P 500 stock index fund that tracks the broad stock market as a whole. Do this through some sort of mutual fund or retirement account that allows for automatic additions to the account every month at no fee.

What this does is get the law of averages working on your side. Some months the stock market will go up and you will automatically invest your set agreed-upon amount. Other months the stock market will go down and you will automatically invest your set agreed-upon amount. The lows and the highs will balance each other out and allow you to get the best possible average...

And that's how you ride out the stock market during a recession.

Leave a reply