Financial professionals are taught early in their careers that bear markets are usually the best time to invest. Stocks that historically produce gains drop in price due to poor market conditions, and savvy investors can pick them up at a discount. This sets up the classic “buy low, sell high” opportunity that’s been at the core of their training since day one.

Unfortunately, bear markets are also times when your retirement savings calculator could provide an inaccurate return projection. If you use the current rate of return during a bear market as the basis for calculating long-term returns, you’ll sell yourself short. The stock market goes through bear markets and bull markets. It all balances out over time.

Timing your retirement contributions

Individuals who work in finance understand the cyclical nature of stock market investing. They buy during bear markets and sell when a bull market drives prices back up. You should follow their lead when it comes to retirement contributions. A bear market, which is when average stock values drop by 20% or more, is a good time to contribute more.

If you’re self-managing an IRA, you may be able to take advantage of bull market gains by selling some of the stocks in your portfolio when they peak and repurchasing them when prices go down again. You won’t be taking money out of your retirement savings to do that. You’ll maximize your earnings potential, provided you know what you’re doing.

An employer-sponsored 401(k) plan does not allow you to buy and sell your own stocks, but you can choose to select a more aggressive portfolio model managed by the 401(k) provider if you want to see more active trading in your account. The investment professionals in charge of making those trades understand how to properly navigate market volatility.

What is dollar cost averaging?

Dollar cost averaging takes the work out of figuring out when to increase your retirement contributions. It’s a technique used by investors where they automate their contributions and use investment models that are passive and not actively trading. You can handle the automation on your end. Ask your retirement plan provider if they are active or passive investors.

Another tip here is to simply max out your retirement contributions. The IRS allows you to contribute $22,500 per year to a 401(k) and $6,500 a year to a traditional IRA or Roth IRA. The 401(k) and traditional IRA contributions are tax-deferred so that you can cut down your current tax liabilities. Let the portfolio managers take care of the investing.

The Bottom Line

The best time to increase your retirement contributions is during a down market, also known as a bear market, because you’ll be able to acquire stocks for less than what they might be worth. If you’re self-managing an IRA, buy low and buy a lot during bear markets. If you don’t want to be bothered with thinking about this, max out your retirement contributions and leave the investment decisions up to your plan administrator.


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