Lots of people have stopped investment in their retirement accounts lately -- or at least shifted their accounts dramatically toward the slow and safe bets.
And we've all heard the gloomy estimates about how long it took the market to recover from the Great Depression -- until 1954. But a column in today's Wall Street Journal should give a little hope to those of us who haven't stopped putting money into stocks through a 401(k) or some other system of "dollar-cost averaging" -- investing the same amount each month, no matter what. That means when the market is down, you buy more shares, and when it's up you get fewer.
Brett Arends argues that investors who used dollar-cost averaging during the Great Depression bounced back within a couple years -- a great comfort to those of us who have stuck with the retirement strategy we had before the downturn.
When the market turned, those who stuck quietly to their plan got repaid quickly. Forget that stuff about 1954. According to Ibbotson data, someone who dollar cost averaged was back on level terms by 1933. And by 1936 he had doubled his money (though the crash of 1938 then knocked him back to evens for a while).
Read the entire column here. Arends acknowledges that it's hard to stay the course with the market as it is, but says that dollar-cost averaging has historically been safer than getting out when the market is bad and trying to figure out the best time to jump back in.
There is a lot of talk about the "worst case scenario," which historically was the collapse of 1929-1932. During that period the Dow Jones Industrial Average fell a simply stunning 89%, from peak to trough, and did not recover all its lost ground until 1954. To put that into context, a similar fall today would take the Dow down to about 1600.
At times like these it can be incredibly difficult to stick with your long-term investment plan. Nothing like this has happened in 80 years, and even long-standing market veterans are badly shaken. Many of you have simply given up. Yes, you know the time to buy shares is when shares are cheap. You may even concede that shares are probably pretty cheap now. But who has the stomach for yet more losses? What if things get a lot worse?
He argues that his analysis of the Great Depression data indicates that those who can tough it out may be rewarded.
It's an argument for sticking to regular investments through this crash: Not bailing, and not jumping in with both feet either. The simplest strategy worked; investing the same amount, every month. It's also an argument for investing globally, and not just in the U.S., which is a lot easier to do today than it was in 1929.
Have you stopped putting money into a 401(k) or other retirement plan -- or shifted money away from stocks? Or are you sticking with it and hoping dollar-cost averaging pays off?