(This video is intended to be shared with employees in the event of a market correction. Two average guys in a diner discuss how to react when their 401(k) account balances drop, and they decide to keep letting dollar-cost averaging do its thing.)
If a stock market dip is making your 401(k) look more like a 201(k), should you pull your money out of the market? Or perhaps stop contributing to your account?
No, and no. When the market is down, you actually get more for your money – it’s what they call “buying low.” And that doesn't mean you have to closely watch the stock market.
The people who do the best with their investments in the long run are the ones who just keep contributing and don’t try to time the market. By buying a set dollar amount of an investment on a regular schedule, regardless of the share price, more shares are purchased when prices are low, and fewer shares are bought when prices are high. This simple strategy is called "dollar-cost averaging," and it's the easy way to "buy low, sell high."
It also means you don't need to panic every time the stock market drops, assuming your investment mix is appropriate for your risk tolerance and time horizon. Just keep contributing and know that when the market is down, it's a great time to buy.