One Strategy to Take Advantage of a Market Decline

With war raging in Ukraine and markets swinging wildly, some investors are wondering whether there are any actions they should be taking with their investments. Moments like these are where a long-term investment strategy shines. Having a long-term outlook with investments can allow investors to tune out the noise, knowing that their portfolio isn’t dependent on predicting outcomes of specific geopolitical events.

One smart action that can take advantage of the recent downswing in markets is to accelerate retirement plan contributions for the year. Investors can get close to a 10% discount on buying the US stock market from its price a few months ago! (As of 2/25/2022)

The enemy of good is perfect. Trying to perfectly time your contributions to the investment markets is close to impossible, the market may continue to fall, or it may rise from here. Short-term market fluctuations are difficult to predict but buying during market drops has generally rewarded patient investors well. The contribution limits for 2022 are:

401(k)/403(b) 2022 employee contribution limit: $20,500

If you are age 50 or better (turning 50 anytime in 2022 counts) you can contribute an additional $6,500 into your retirement plan, for a total of $20,500 + $6,500 = $27,000.

One complication with this is employer matching contributions. If you receive matching contributions from your employer, make sure you carefully understand how the matching contributions function. While the benefit of taking advantage of the dip in market could boost your future investment returns, you need to be careful that you don’t forfeit any matching contributions. Some employer’s match contributions on a pay period basis. If you max out your employee contribution early in the year, then you may not receive your full matching contribution from your employer.

If you’re contributing to your workplace retirement accounts, make sure you understand your employer’s matching rules before front-loading your contributions.