Woman researching market conditions

No two roads to retirement are alike. Your journey will look different from that of your friends and colleagues based on a near-infinite number of factors, such as income, savings rate, personal retirement goals — the list goes on.

However, there are some common scenarios that, regardless of the journey, most investors and retirement planners will encounter at some point. And while it’s easy to let your worries take hold when faced with one of these seeming conundrums, letting your emotions get the best of you could do more than just cause unneeded stress. If you let your emotions push or keep you out of the market in such times, it could hit you where it hurts the most: your bottom line.

We’ve said it before, but it bears repeating: The best way to achieve your investing and retirement goals is to develop a long-term plan — and then stick to it. Sure, adjustments may be necessary along the way, but your personal circumstances and not the movements of the market should drive any changes you make.

Without a long-term approach, it’ll be too easy for you to get trapped by one of these common market scenarios:

“The market is at a high and I’ve missed my chance.”

Should you find yourself trying to pick the “perfect time” to get back in the market, forget about it — there’s no such thing. Rather, get back in gradually by determining an amount you’re comfortable investing and combining it with a schedule that works for you. If you want to invest $10,000, that might mean investing $5,000 now and another $2,500 every 30 days, or $5,000 now and another $500 each month, until you’ve invested the entire sum. This strategy is an example of dollar-cost averaging, whereby you put a set amount of money each month into your investment and retirement accounts. This tried-and-true method works because you’re investing an amount you’re comfortable with, and you don’t need to worry about making the right decision at the perfect time.

“The market is too volatile right now; sitting out is safer.”

If you think getting out of the stock market to avoid volatility is the better way to go, consider the cost of being on the sidelines for just a few days. If you’d invested $10,000 on Jan. 1, 1989, and stayed invested, that $10,000 would have been worth $180,926 on Dec. 31, 2017 — up +10.5%1. However, had you missed only the market’s 30 best days over that period, your original investment would have grown just +4.6% to $37,1692.

“The market has dropped / I fear a pullback; sitting out is safer.”

Not to worry — market pullbacks, which typically represent a 5%–9% decline, are normal and can even be a sign of a healthy market. Take the S&P 500 index (and its predecessor) going back to 1928. On average, you’ll see the stock market drops -5% five times per year, -10% twice a year, and -15% once a year3. If you get out of the market during a downturn, you’re locking in your losses and making them permanent — but a downturn can actually present a good opportunity to buy at lower prices.

It’s best to take emotion out of your investing strategy to avoid getting sidelined by one of these market scenario traps. And how do you do this? By getting a plan.

1, 2 As represented by total returns on the S&P 500 Index from Jan. 1, 1989, to Dec. 31, 2017. Index returns are provided as a benchmark and are not illustrative of any particular investment. An investment cannot be made in an index.
3 S&P Dow Jones Indices LLC.