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San Francisco Chronicle
5 hours ago
- Business
- San Francisco Chronicle
It might be tempting to put 401(k) contributions on hold, but sticking with it is a better strategy
Amid this year's market turmoil, I've heard investors wonder if they should hit pause on 401(k) contributions until things settle down. Though this approach sounds tempting, it's better to stick with your investment strategy instead of waiting for conditions to improve. Running the numbers To test how a 'wait and see' approach would have fared compared with continuing to invest, I looked at four different market downturns of the 21st century. In each case, I looked at results under two different scenarios: an investor who started saving $500 per month and continued to do so throughout downturns, and another investor who stopped saving until the market started to improve. I assumed all contributions were invested in stocks. (In the first four cases below, I assumed that contributions were only paused during the bear market in question and then resumed for all the periods that followed.) Case 1: March 2000–October 2002 Stocks suffered cumulative losses of about 33% from early 2000 through October 2002. But an investor who started investing $500 per month in March 2000 and kept doing that even throughout the turmoil would have about $700,000 as of March 31, 2025. The 'wait and see' investor, on the other hand, would have about $573,000. Case 2: October 2007–February 2009 An investor who started investing $500 per month in October 2007 and continued making monthly investments would have about $360,000 as of March 31, 2025. An investor who paused contributions until March 2009 would have about $307,000 as of the same date. Case 3: February and March 2020 The covid-19-driven market downturn led broad stock market indexes to shed about 34% of their value from Feb. 19, 2020. But after this sharp downturn, the rebound was even more impressive, with stocks posting gains of 28.7% during 2021. As a result, the 'keep buying' investor would have still ended slightly ahead by March 2025, even after suffering through market downturns in 2022 and early 2025. Case 4: January 2022–October 2022 The 2022 market reversal was a sharp reaction to 2021's unexpected spike in inflation, followed by a series of aggressive interest-rate hikes. As a result, the Morningstar US Market Index lost about 19% from January through October of that year. But thanks to the market's dramatic rebound, the 'keep buying' investor would have ended about $7,000 ahead by March 2025. Case 5: January 2000–March 2025 The differences are even more dramatic over a longer period. For this analysis, I assumed that an investor started contributions of $500 per month in January 2000, paused during each of the four above downturns, and then resumed contributions after the market had bottomed out. But even in this seemingly ideal scenario, consistent contributions won out. The consistent 401(k) contributor ended up nearly $200,000 ahead of the stop-and-start investor. The reason? Consistent contributions meant there were more dollars around to benefit when the market rebounded, while hitting pause on contributions meant the opposite. And the impact compounds over time. The 'wait and see' investor would have skipped out on 61 months' worth of contributions for a total of $30,500 but ended with a balance about $184,000 lower than the 'keep buying' approach. Why retirement savers shouldn't give up These examples make a strong case for sticking with the plan, even during a bear market. But this analysis probably overstates the results for 'wait and see' investors because it assumes that investors somehow knew when the market would start recovering. Not only is it tough to get the timing right for a market recovery, but keeping money on the sidelines means betting against the odds. Statistically speaking, the market goes up more than it goes down. Watching a 401(k) lose money isn't fun to live through, but things eventually turn around. ___
Yahoo
7 hours ago
- Business
- Yahoo
It might be tempting to put 401(k) contributions on hold, but sticking with it is a better strategy
Amid this year's market turmoil, I've heard investors wonder if they should hit pause on 401(k) contributions until things settle down. Though this approach sounds tempting, it's better to stick with your investment strategy instead of waiting for conditions to improve. Running the numbers To test how a 'wait and see' approach would have fared compared with continuing to invest, I looked at four different market downturns of the 21st century. In each case, I looked at results under two different scenarios: an investor who started saving $500 per month and continued to do so throughout downturns, and another investor who stopped saving until the market started to improve. I assumed all contributions were invested in stocks. (In the first four cases below, I assumed that contributions were only paused during the bear market in question and then resumed for all the periods that followed.) Case 1: March 2000–October 2002 Stocks suffered cumulative losses of about 33% from early 2000 through October 2002. But an investor who started investing $500 per month in March 2000 and kept doing that even throughout the turmoil would have about $700,000 as of March 31, 2025. The 'wait and see' investor, on the other hand, would have about $573,000. Case 2: October 2007–February 2009 The market downturn in 2008 was the second-worst calendar year for equity investors in recent market history. An investor who started investing $500 per month in October 2007 and continued making monthly investments would have about $360,000 as of March 31, 2025. An investor who paused contributions until March 2009 would have about $307,000 as of the same date. Case 3: February and March 2020 The covid-19-driven market downturn led broad stock market indexes to shed about 34% of their value from Feb. 19, 2020. But after this sharp downturn, the rebound was even more impressive, with stocks posting gains of 28.7% during 2021. As a result, the 'keep buying' investor would have still ended slightly ahead by March 2025, even after suffering through market downturns in 2022 and early 2025. Case 4: January 2022–October 2022 The 2022 market reversal was a sharp reaction to 2021's unexpected spike in inflation, followed by a series of aggressive interest-rate hikes. As a result, the Morningstar US Market Index lost about 19% from January through October of that year. But thanks to the market's dramatic rebound, the 'keep buying' investor would have ended about $7,000 ahead by March 2025. Case 5: January 2000–March 2025 The differences are even more dramatic over a longer period. For this analysis, I assumed that an investor started contributions of $500 per month in January 2000, paused during each of the four above downturns, and then resumed contributions after the market had bottomed out. But even in this seemingly ideal scenario, consistent contributions won out. The consistent 401(k) contributor ended up nearly $200,000 ahead of the stop-and-start investor. The reason? Consistent contributions meant there were more dollars around to benefit when the market rebounded, while hitting pause on contributions meant the opposite. And the impact compounds over time. The 'wait and see' investor would have skipped out on 61 months' worth of contributions for a total of $30,500 but ended with a balance about $184,000 lower than the 'keep buying' approach. Why retirement savers shouldn't give up These examples make a strong case for sticking with the plan, even during a bear market. But this analysis probably overstates the results for 'wait and see' investors because it assumes that investors somehow knew when the market would start recovering. Not only is it tough to get the timing right for a market recovery, but keeping money on the sidelines means betting against the odds. Statistically speaking, the market goes up more than it goes down. Watching a 401(k) lose money isn't fun to live through, but things eventually turn around. ___ This article was provided to The Associated Press by Morningstar. For more personal finance content, go to Amy Arnott is a portfolio strategist at Morningstar. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Winnipeg Free Press
8 hours ago
- Business
- Winnipeg Free Press
It might be tempting to put 401(k) contributions on hold, but sticking with it is a better strategy
Amid this year's market turmoil, I've heard investors wonder if they should hit pause on 401(k) contributions until things settle down. Though this approach sounds tempting, it's better to stick with your investment strategy instead of waiting for conditions to improve. Running the numbers To test how a 'wait and see' approach would have fared compared with continuing to invest, I looked at four different market downturns of the 21st century. In each case, I looked at results under two different scenarios: an investor who started saving $500 per month and continued to do so throughout downturns, and another investor who stopped saving until the market started to improve. I assumed all contributions were invested in stocks. (In the first four cases below, I assumed that contributions were only paused during the bear market in question and then resumed for all the periods that followed.) Case 1: March 2000–October 2002 Stocks suffered cumulative losses of about 33% from early 2000 through October 2002. But an investor who started investing $500 per month in March 2000 and kept doing that even throughout the turmoil would have about $700,000 as of March 31, 2025. The 'wait and see' investor, on the other hand, would have about $573,000. Case 2: October 2007–February 2009 The market downturn in 2008 was the second-worst calendar year for equity investors in recent market history. An investor who started investing $500 per month in October 2007 and continued making monthly investments would have about $360,000 as of March 31, 2025. An investor who paused contributions until March 2009 would have about $307,000 as of the same date. Case 3: February and March 2020 The covid-19-driven market downturn led broad stock market indexes to shed about 34% of their value from Feb. 19, 2020. But after this sharp downturn, the rebound was even more impressive, with stocks posting gains of 28.7% during 2021. As a result, the 'keep buying' investor would have still ended slightly ahead by March 2025, even after suffering through market downturns in 2022 and early 2025. Case 4: January 2022–October 2022 The 2022 market reversal was a sharp reaction to 2021's unexpected spike in inflation, followed by a series of aggressive interest-rate hikes. As a result, the Morningstar US Market Index lost about 19% from January through October of that year. But thanks to the market's dramatic rebound, the 'keep buying' investor would have ended about $7,000 ahead by March 2025. Case 5: January 2000–March 2025 The differences are even more dramatic over a longer period. For this analysis, I assumed that an investor started contributions of $500 per month in January 2000, paused during each of the four above downturns, and then resumed contributions after the market had bottomed out. But even in this seemingly ideal scenario, consistent contributions won out. The consistent 401(k) contributor ended up nearly $200,000 ahead of the stop-and-start investor. The reason? Consistent contributions meant there were more dollars around to benefit when the market rebounded, while hitting pause on contributions meant the opposite. And the impact compounds over time. The 'wait and see' investor would have skipped out on 61 months' worth of contributions for a total of $30,500 but ended with a balance about $184,000 lower than the 'keep buying' approach. Why retirement savers shouldn't give up These examples make a strong case for sticking with the plan, even during a bear market. But this analysis probably overstates the results for 'wait and see' investors because it assumes that investors somehow knew when the market would start recovering. Not only is it tough to get the timing right for a market recovery, but keeping money on the sidelines means betting against the odds. Statistically speaking, the market goes up more than it goes down. Watching a 401(k) lose money isn't fun to live through, but things eventually turn around. ___ This article was provided to The Associated Press by Morningstar. For more personal finance content, go to Amy Arnott is a portfolio strategist at Morningstar.
Yahoo
8 hours ago
- Business
- Yahoo
It might be tempting to put 401(k) contributions on hold, but sticking with it is a better strategy
Amid this year's market turmoil, I've heard investors wonder if they should hit pause on 401(k) contributions until things settle down. Though this approach sounds tempting, it's better to stick with your investment strategy instead of waiting for conditions to improve. Running the numbers To test how a 'wait and see' approach would have fared compared with continuing to invest, I looked at four different market downturns of the 21st century. In each case, I looked at results under two different scenarios: an investor who started saving $500 per month and continued to do so throughout downturns, and another investor who stopped saving until the market started to improve. I assumed all contributions were invested in stocks. (In the first four cases below, I assumed that contributions were only paused during the bear market in question and then resumed for all the periods that followed.) Case 1: March 2000–October 2002 Stocks suffered cumulative losses of about 33% from early 2000 through October 2002. But an investor who started investing $500 per month in March 2000 and kept doing that even throughout the turmoil would have about $700,000 as of March 31, 2025. The 'wait and see' investor, on the other hand, would have about $573,000. Case 2: October 2007–February 2009 The market downturn in 2008 was the second-worst calendar year for equity investors in recent market history. An investor who started investing $500 per month in October 2007 and continued making monthly investments would have about $360,000 as of March 31, 2025. An investor who paused contributions until March 2009 would have about $307,000 as of the same date. Case 3: February and March 2020 The covid-19-driven market downturn led broad stock market indexes to shed about 34% of their value from Feb. 19, 2020. But after this sharp downturn, the rebound was even more impressive, with stocks posting gains of 28.7% during 2021. As a result, the 'keep buying' investor would have still ended slightly ahead by March 2025, even after suffering through market downturns in 2022 and early 2025. Case 4: January 2022–October 2022 The 2022 market reversal was a sharp reaction to 2021's unexpected spike in inflation, followed by a series of aggressive interest-rate hikes. As a result, the Morningstar US Market Index lost about 19% from January through October of that year. But thanks to the market's dramatic rebound, the 'keep buying' investor would have ended about $7,000 ahead by March 2025. Case 5: January 2000–March 2025 The differences are even more dramatic over a longer period. For this analysis, I assumed that an investor started contributions of $500 per month in January 2000, paused during each of the four above downturns, and then resumed contributions after the market had bottomed out. But even in this seemingly ideal scenario, consistent contributions won out. The consistent 401(k) contributor ended up nearly $200,000 ahead of the stop-and-start investor. The reason? Consistent contributions meant there were more dollars around to benefit when the market rebounded, while hitting pause on contributions meant the opposite. And the impact compounds over time. The 'wait and see' investor would have skipped out on 61 months' worth of contributions for a total of $30,500 but ended with a balance about $184,000 lower than the 'keep buying' approach. Why retirement savers shouldn't give up These examples make a strong case for sticking with the plan, even during a bear market. But this analysis probably overstates the results for 'wait and see' investors because it assumes that investors somehow knew when the market would start recovering. Not only is it tough to get the timing right for a market recovery, but keeping money on the sidelines means betting against the odds. Statistically speaking, the market goes up more than it goes down. Watching a 401(k) lose money isn't fun to live through, but things eventually turn around. ___ This article was provided to The Associated Press by Morningstar. For more personal finance content, go to Amy Arnott is a portfolio strategist at Morningstar.
CNBC
24-04-2025
- Business
- CNBC
Warren Buffett has a record amount of cash on the sidelines. Here's how experts recommend balancing saving and investing
Warren Buffett is sitting on a record amount of cash. That's not necessarily something everyday investors should emulate. If you have money on the sidelines, it may be time to rethink your strategy, experts say. Buffett's conglomerate Berkshire Hathaway, with a diverse portfolio of businesses, was sitting on a record $334 billion in cash at the end of last year. Yet in a February letter to shareholders, Buffett told shareholders that "despite what some commentators currently view as an extraordinary cash position," the majority of the money invested in Berkshire is in equities. "Berkshire will prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned," Buffett wrote. More from Personal Finance:Avoid 'dangerous' investment instincts amid tariff sell-offWhat to know before trying to 'buy the dip'20 items and goods most exposed to tariff price shocks In hindsight, Buffett's cash position looks wise, as Trump administration tariff policies have caused market turbulence. Investors have also been thought to have a cash cushion. There is $6.88 trillion in money market funds as of the week ending April 16, according to the Investment Company Institute — even though higher interest rates have made it possible to earn more on cash. Yet even as the markets have flirted with bear territory, experts still say it's possible to have too much money on the sidelines. A traditional portfolio comprised of 60% stocks and 40% bonds almost always outperforms cash in the long run, according to recent JPMorgan Asset Management. That is based on a classic 60/40 portfolio comprised of the S&P 500 index and Bloomberg US Aggregate Bond Index versus cash based on Treasury bills or a certificate of deposit equivalent, according to Jack Manley, global market strategist at JPMorgan Asset Management. In looking at data over 1995 to 2024, the 60/40 portfolio beat cash on a one-month basis roughly 65% of the time, Manley said. On a six-month basis, that increases to 75% of the time. For one year, that climbs to 80% of the time. And by the time you hit 12 years, it's 100% of the time, he said. Yet in times of uncertainty, investors often feel safer in cash. "When we think about investors making the wrong decisions — investing with their guts, not with their brains, where they are going to if they're panicking — they're going to cash," Manley said. In the stock runup of 2024, a "plain-vanilla version" of a 60/40 portfolio gained about 15%, according to new Morningstar research. The portfolio includes a 60% weighting in the Morningstar US Market Index and 40% in the Morningstar US Core Bond Index. Yet a diversified portfolio of 11 different asset classes only gained about 10%, the research found. That included larger cap domestic stocks, developed markets stocks; emerging markets stocks; Treasuries; U.S. core bonds; global bonds; high yield bonds; small cap stocks, commodities; gold and REITs. Major shifts in U.S. tariff policy may change how well those strategies perform going forward. Thus far in 2025, a diversified portfolio has held up better, with gold gaining about 32% this year, according to Amy Arnott, portfolio strategist at Morningstar. Meanwhile, commodities, global bonds and real estate have held up better than U.S. stocks, she said. With interest rates higher, cash has been a better portfolio diversifier than Treasuries in recent years, according to Morningstar's research. Notably, those cash allocations are best held outside the portfolio in an emergency fund or for any large expenses that may come up in the next two years, Arnott said. Current retirees may want to have at least one to two years' worth of portfolio withdrawals in cash, she said. With current turmoil and market uncertainty, it's important to remember that making radical shifts to your portfolio can often backfire, Arnott said. "If you've had an asset allocation that was a good fit for your time horizon and your investment goals previously, it's probably not a good idea to be making dramatic changes to that just because of all the uncertainty that's going on right now," Arnott said. Investors who have an ample cash position to fit their needs do tend to feel more confident now, said Adrianna Adams, a certified financial planner and head of financial planning at Domain Money. However, for those who already have a sufficient emergency fund, the best use for extra cash is typically in the markets, Adams said. "I wouldn't recommend holding cash if we're using that account or allocation towards our long-term goals," Adams said. "If we're going to need the money in the next two years, then absolutely, we should keep it in cash." High-yield savings accounts tend to be a favorite among consumers for emergency funds, Adams said. However, individuals in high-income tax brackets may want to consider municipal money market funds that help limit the tax bills they will pay on the interest they earn on that money, she said.
