Retirement Mistakes to Avoid in Turbulent Times – And What to Do Instead

During market downturns, financial pundits can often make you feel like the world is ending. The common refrain is that things may never improve, and it’s better to cut your losses and get out of the stock market now before things get worse.

Don’t buy into the panic. A huge mistake can be to sell out of the stock market and simply sit in cash. The problem with this approach is that it is practically impossible to time the market. For this to work, you have to time the market correctly not only once but twice! Most investors end up selling as the market declines and then wait to buy in again once the market has already recovered – essentially the opposite of the buy low and sell high philosophy.

I tell my clients that timing the market requires more luck than skill. When it comes to retirement planning, I prefer to rely on math, science, data and a well thought out strategy that accounts for market volatility. Not luck. Stopping contributions into a retirement account when the market is down is typically the wrong move. When the market is down, it can be one of the best times to invest.

An analysis of market performance over decades clearly shows equities have outperformed bonds over the long term. While the market fluctuates in the short term, it generally rises over time. We can look back historically and view the times when it appeared the "world was ending" economically, and we see now that the market always recovered. Typically, the best "gains" in the market have been following the "bad times." We need to view this data and realize that optimism should be viewed as the only realism. For most individuals selling and moving money into cash when the market is down is one of the worst investment decisions an individual can make.

Here are some tips to avoid making costly mistakes with your retirement account when markets are turbulent: