I wouldn't want to be a 401(k) administrator or mutual fund call center person right now. I can't imagine the calls, beginning with "what should I do now?"
Fidelity Investments, for example, said it received four million calls from its investors. With most investors focusing on whether we're in a bear market now, that is, a prolonged period of lower prices triggered by a 20% decline, it's natural to get jittery.
I have no idea where the market is going. The market's going to be as rocky as a dinghy in a hurricane. It won't be pleasant.
According to economist Bob Froehlich with American Realty Capital, he not only expects "two to three interest rate hikes this year," but also sees "extreme volatility" continuing in the stock market. Yet he's still quite bullish about the American economy, noting that low energy prices, strong manufacturing and a jobs rebound are going to be positive for U.S. stocks.
"You'll look for reasons not to invest," Froehlich told the Executive's Club of Chicago annual economic outlook luncheon recently, "but when things look the worst, it's the best time to invest. It's actually the best time to invest over the last 20 years."
A big boost to American spending should be the continuing drop in oil prices, which in some places the price of gasoline is under $2 a gallon. Froehlich says last year, the petroleum price dip saved Americans some $120 billion, which is being used to pay off debt and to replenish savings.
A global glut of oil is going to keep pushing gasoline and the prices of petroleum products lower. At present, about 1 million more barrels of oil a day more than present demand are being pumped out of the ground by all the major producers, led by Saudi Arabia. Every country is desperate to hold onto its market share as more American shale oil and Iranian crude come on the market.
While growth in the Gross Domestic Product -- the total output of the country's goods and services -- is predicted to be meager (perhaps 2% to 4%), Froehlich maintains that the "stock market doesn't drive the U.S. economy."
What You Should Be Doing
How easy is it to bail and move into cash in your 401(k)? It's probably a simple matter. But don't do it. Avoid the temptation.
Buy more shares in stock funds. You're getting a better price and buying more shares when the price goes down. And since you're reinvesting the dividends, you're buying even more shares.
Why does this make sense? Because dumping shares increases the chance that you'll miss the market's upswing. You'll be sitting on the sidelines when it's "safe" to come back in.
Unfortunately, some people wait for years before they get back into the market and completely miss a rebound. Did you know that the stock market tripled from 2009, which the recession ended, to 2014?
What should you be doing? Keep investing in your 401(k). Research published late last year by the Employee Benefit Research Institute showed that those who saved consistently -- even when they were afraid to invest -- accumulated more money long-term than those who got out of the market.
The reason why this principle works is that you're buying stocks at lower prices and holding them as they appreciate. Of course, like most investors, you have no idea when stocks will gain in value, much less the best price to buy them at. So buying consistently, rather all at once, is a better way to "dollar cost average" your way into long-term profits.
Disclosure: My 401(k) is held by Fidelity.
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