Don Steinmann's Investment Tip of the Week

Don Steinmann's
Investment Tip of the Week

Don’t Let the Dollars Make You Crazy

It’s a really good thing to have lots of retirement savings (or any savings for that matter). People who contribute to their 401k plan over the years can accumulate a serious amount of money. But there is a problem that happens. When you’re talking about a large sum of money, a small change in the percentage can be many dollars.

Example: Fred has accumulated $500,000 in his 401k plan at work that is primarily in stock mutual funds. Then there is an 8% correction in the market. Fred can either say “Hmm, an 8% correction is no fun, but in the scheme of things it’s not a huge deal” or he can say “Oh my gosh, I’ve lost $40,000!”. When Fred’s account was a $10,000, that same 8% correction would only be $800. But the magnitude of the account size makes those dollars look scary.

Here is the thing. When was the last time there was a year that the stock market did not correct by at least 8% once during the year? Answer, 1995. Over the last 15 years, and really almost every year, there will as some point be a correction of at least 8%. Many years it happens several times. Often, it’s undone pretty quickly. However, stocks are long term investments. You’re going to have ups and downs of 8% and more pretty frequently.

Even a change of 1% is $5,000 in this case. So try to think in terms of percentage changes in your account regardless of the size, not total dollars. That way you won’t get too excited about a $40,000 gain (up 8%) or a $40,000 decline (down 8%). In other words, don’t let the dollars make you crazy.

Scroll to Top