If you like roller coasters, you might be enjoying the ride on Wall Street these days, as the stock market spikes then tumbles, then hits bottom and careens up again. But for most of us, whose stomachs clench at such high jinks, these are unsettling times. But take heart – those reckless gyrations may actually be good for your retirement plans.
Dramatic dives in the stock market allow you to “buy the dips.” And the dips are so frequent these days you don’t even need to know when they will occur. With stock prices flying up and down, chances are that next payday when you contribute to your 401(k) plan prices will be down, so you’ll get more shares for your money. You’ll be enjoying dollar-cost averaging: by investing the same amount at regular intervals, you automatically buy more shares when prices are low than when they are high, so your average cost per share diminishes.
The more volatile the market and the more extreme the price fluctuations, the better off you’ll be in the long run. It may sound crazy at first, but it makes sense: when prices swing wildly up and down, you frequently will have the opportunity to buy low. As the stock market inches up over time, you’ll enjoy greater gains than those who plunked all their money into the market when it was high, or who invested in a market that was slowly rising rather than wildly fluctuating.
So when prices dip, break out the champagne! With your next 401(k) contributions, you’ll be buying stocks on sale. Hang on for dear life, and enjoy the ride.