3 things that get harder when the stock market falls, from saving to investing

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  • When markets fall, it can be harder to grow your money, keep investing, and continue saving for retirement. 
  • Your 401(k)’s value might fall, and you might notice your high-yield savings account earning less than it did before.
  • There’s a lot of uncertainty in the markets today due to the coronavirus. But, if your plans are the same, maintaining your goals is important, even if it’s harder to stay motivated. 
  • Read more personal finance coverage »

When stock markets are down, it can send ripples through the economy, affecting everything from interest rates to your 401(k) balance.

The coronavirus has added an extra layer of uncertainty for many investors. “Even if you understand completely that markets go up and markets go down, and that in the long run, things will be okay, I think there’s this overriding uncertainty at the moment,” says Howard Hook, a financial planner with EKS Associates in Princeton, New Jersey. 

When markets fall, it can get harder to stay the course on your goals and keep doing things the way you always have, even though it’s still important. If your goals haven’t changed, your actions shouldn’t either. Here are three things that get harder, but are still important:

1. Investing

Once you have an investment plan, it’s important to stick to it, even when the markets drop. “I think it’s very hard for most people to look at this as a buying opportunity,” Hook says. 

In a sense, a market that’s fallen can act like a sale, allowing you to buy stocks for less. “Lower prices, in essence, will result in buying more shares,” Hook says. “You may wind up with more money down the road because you’ve bought more shares at a lower price.” 

Continuing to invest is important, even when markets are constantly up and down. If you’re worried about it, stick with a conservative investing method like dollar-cost averaging, where money is invested at regular intervals to offset market ups and downs. 

There’s one exception to the keep-investing rule: If you don’t have a full emergency fund, consider leaving your existing investments where they are and diverting extra cash you have right now into an emergency fund in case of job loss or a medical emergency during this unusual time. Personal finance expert and “I Will Teach You To Be Rich” author Ramit Sethi said in a “fireside chat” that having stable cash reserves that could last for six to 12 months should be a bigger priority than possibly making gains in the market. 

2. Saving for retirement

Investments are a big factor in many retirement savings plans. When markets are down, your 401(k) might appear smaller as well. When that happens, staying motivated to save can be tough — especially when you aren’t seeing the increases you’re used to. 

For younger people who still have many years for their savings to grow, a few down years in the stock market shouldn’t cause huge problems for your 401(k), as long as it stays invested. However, other groups may not be so lucky. “It could affect people that have been building a nest egg for retirement and then are now approaching retirement,” says Hook. If you’ve seen your retirement savings crushed by the markets and you’re approaching retirement, selling off assets should be a last resort

In either situation, seeing your account values stagnate or drop can be discouraging. But, a few down weeks or even years in the market shouldn’t ruin your plan if you stick to it, even for those who are nearing retirement.”When you retire, it’s not like you’re taking every last dollar out of the 401(k) to spend at 65 or 70. A 65-year-old retiring has got a good chance that they’re going to need that money for the next 25 years,” he says. Since retirement accounts are drawn on for many years, a bad quarter for your investments shouldn’t hurt your retirement plan. 

Continuing with your usual saving and investing will help you come out of the downturn without too much damage, if not for the better. 

3. Making money grow

Several months ago, it was easier to make money grow, quite simply because interest rates were higher. A major change in the stock market’s performance can mean a change in the Federal Funds Rate, which controls all the interest rates around saving and spending. After a series of interest rate cuts, new money going into CDs and high-yield savings account balances will earn less interest than it would have several months ago. 

You might notice your accounts that once earned lots of interest growing slower. But, that doesn’t mean that you should stop saving. Now’s the time to remember what you’re saving for, and automate your savings to keep your accounts growing automatically. Interest rates will eventually rise again, and when they do, you’ll have more money to grow.