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April 11, 2008 at 08:00 PM
Keep perspective – recessions have typically lasted between six months and 18 months, a small period of time for the long-term, strategic investor. Market reactions to recessions have been mixed in the past, but the current trend in the U.S. appears to be toward the negative side. Recessions can’t be officially declared until you are well into one, but investors appear to believe we are in one. However, if you consider the losses to date, the eroded gains are not devastating to the long-term investor. As of Jan. 17, it has eroded 15 months of performance from a long bull market.
Dollar-cost averaging is the process where you invest small portions of a large investment over time versus placing that large investment in the market all at one time. It’s a great way of reducing regret when future market performance is extremely uncertain.
The recent market decline creates a buying opportunity for long-term investors. When prices are low, investors acquire more shares for every dollar they invest. Additionally, the government incentive for individuals 50 and over to catch up with additional contributions in tax-qualified programs like 401(k)s and IRAs still exists. So, invest that extra money now and pick up additional shares.
