Costs on most things we use in our daily lives are increasing, the stock market is all over the map, and we keep hearing about the possibility of a recession. The status quo almost makes you forget that in 2021, the S&P 500 regularly reached new records and the market hit 70 all-time highs. There has been only one other year when that has occurred.
These periods of unpredictable rises and falls in the market is called market volatility. This is something we have all heard of, especially these days but what does it mean to the average individual trying to put money away for retirement?
Since 2000 alone, our markets have seen plenty of growth, but they have also seen downturns triggered by events like the 9/11 attacks, the Great Recession, and the dot-com crash. For many, these situations spark fear and uncertainty. In this illustration provided by TIAA, we’ll look back a few years as an example of why it’s important to stay the course.
In 2005, you started investing just $100 a week in your retirement account. You save $100 a week for one year for a total of $5,200. You decide to keep doing this annually.
In 2008, when the Great Recession hit, the federal government bailed out the banks. According to a historical investment calculator, it caused the S&P to plunge by almost 39%. That is almost twice the drop we have seen this year. At this time, you had been saving $5,200 a year for four years, totaling $20,800. But with the 39% drop, your $20,800 is now barely worth $15,000. At this point, many others have panicked and pulled out their money. But let’s say you kept investing $100 each week.
In your fifth year of saving $100 a week, you have now set aside $26,000. That year the S&P jumps 24%. That means on paper, your $26,000 was worth a little more than $24,000. The year before, your investment was down about 25% on paper but now it’s narrowed, and it is barely down 6%. You decide to keep investing $100 a week. Sometimes the investments were up and other times they were down. It’s volatile.
After 10 years, you have invested a total of $52,000. And on paper, your investment return is now worth more than $80,000. Your investment that was once a 25% loss on paper has grown into a 54% gain.
During your career and into your retirement, there will surely to be more market volatility and it’s important to mention that past performance doesn’t guarantee future performance, but each volatile period is only a snapshot in time. By staying the course, a market rebound is likely to put you back in good shape. Investing involves risk and you should take your own personal situation into consideration and talk to a financial professional. Schedule an appointment today to speak with a financial professional at CAPTRUST, TIAA, or Fidelity.
