Looking at the S&P 500 Bear Market and If It’s The Right Time To Invest
June 14, 2022
Welcome to Wealth Enhancement & Preservation’s Market Minute, where we get to update you on everything that happened in the financial markets this week. My name is Cody Moore, and I am a Wealth Advisor at Wealth E&P’s Alpharetta, Georgia office.
Last week we saw a rough week in the markets. The CPI data was released on Friday indicating that inflation had continued to increase in the month of May. Markets reacted negatively to that news, and that trend has continued into today. The S&P 500 officially entered into bear market territory, meaning it is down 20% or more. With that, I want to address a common question that we've gotten with the volatility here in 2022: Should you continue to contribute to your 401ks, or should you stop those investments?
I want to look at a term called Dollar cost averaging. Dollar cost averaging is really just investing regularly, as you do to your 401k, as opposed to one large lump sum. As you can see above, throughout this example, you're investing $300 and you're getting 10 shares to start with. As the value comes down, as it has here in 2022, you're able to get 30 shares for that money. Continuing upward, as you're getting back towards break-even, you've gotten a lot more shares for your money than if you invested it all in one lump sum at the beginning. We know we can get a better price per share right now, but we need to know what the time horizon looks like.
If we look back throughout history and bear markets all the way back to 1900 in the chart above, the average bear market is lasting three years before it's getting back to break-even and making money again. With that being said, considering all of that data, if you've got 10, 15, or 20+ years until retirement, you're in a good spot to continue that contribution. Continue contributing to your 401ks and any regular investments that you do.
At Wealth E&P, we are able to manage our clients' 401ks for them, which can be very beneficial. If you have any other questions on this or anything else, if you want a risk profile, or if you would like a retirement projection, please feel free to reach out or visit www.wealthep.com. Otherwise, stay tuned for our Market Minute next week!
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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