Should I Stop Contributing to my 401k?
You’ve been contributing money to your 401k out of every paycheck. Good for you. But should you do that even when the news looks bad? How about if there’s a recession or a bear market?
We are pummeled with information every day. It comes from alerts on our phones, TV, emails, and all sorts of other sources. To make it worse, the bad news is always amplified. It’s always been that way to an extent, but it seems worse than ever.
Business and economic news is no exception here. If there’s one thing you can count on, it’s the media to alert the public when something bad happens in the business world. If one company hires 500 people and another lays off 500 people, it’s no secret which one will be magnified. The stock market can be even worse with the way negative news is reported.
We can recognize the lens the media puts on poor news, but still be affected by it. It can be draining when you’re pounded with negative news. It’s even worse if there’s a big down day in the financial markets and you see how much it affected your own balance for something like your retirement account or 401k. It’s understandable that you might want to stop taking money out of your paycheck when your balance is declining, but should you?
Should I Stop Taking Money out of Every Paycheck for Retirement?
No, you should not stop contributing to your retirement because of bad news or declines in the stock market. I can show you with all kinds of convincing historical charts, spreadsheets, and more about how historically folks that keep contributing or even increase their percentage going to their 401k do better in the long run.
The Marvelous Magic of How Compound Interest Works
What I’m supposed to do is show you some charts about how markets recover in the long run. I’m supposed to show comparisons of folks who contributed consistently and how much better they did. I’m also supposed to show you this thing called a Monte Carlo analysis that show likelihood of success after thousands of computer simulations. That’s what I’m supposed to do.
Instead, I’d like to tell you about grapes.
The Veracity of the Vintner
Have you ever met someone who works at a vineyard? They’re incredibly patient people. They have to be.
If you wanted to start a vineyard, first you would secure the land and plant your grapes. It can take almost three years before the first grapes show up. The crop will often not be ready for bottling the initial vintage until 2-3 years later. Then there’s aging and fermentation that occurs over at least a few months. For some kinds of wine, aging for years before it’s ready sell and drink is the plan from day one.
It’s an exercise in patience to be sure. More than that though, it’s an exercise in extreme optimism.
Think about it. When a Vintner (Winemaker) plants a seed for a vine, they are planning for something years down the road. Tending the soil, watering, and fending off insects are all required to be sure, but it’s an exercise in hopefulness for the future.
“She goes to inspect a field and buys it; with her earnings she plants a vineyard.” Proverbs 31:16
The Proverb above talks about taking earnings and investing it in the future. The metaphor is so apt because investing anything in the present for a time down the road requires some level of optimism.
A vineyard does not come from just tossing some grape seeds into some dirt. It requires tending the soil, watering, trimming the vines, fending off pests, and more.
Beyond all those things the vintner does, think of all the things beyond their control like the temperature, rainfall, or all manner of things. It would be understandable if a grape grower became disillusioned on occasion.
What happens if the vintner doesn’t water the grapes or provide fertilizer for a season? The grapes may grow. There may still be a harvest for wine years down the road. If one vintner chooses to take a break from tending the vineyard for a while and his neighbor shows up every week to tend to the vines, which one do you believe will have the bigger crop someday?
"Nothing great is created suddenly, any more than a bunch of grapes..." Epictetus
If you invest for retirement, it’s because you believe you and your spouse will have years after you leave the working world to live together.
If you invest for your children’s college, it’s because you believe they have the ability get into school someday.
If you invest for a business you want to start someday, it’s because you believe there’s something good that business can do for your fellow man in the years ahead.
Be optimistic about your family’s future. There are good things ahead that will require resources. Invest today and make it a habit so that those future days are provided for adequately.
While there are sometimes circumstances when you should stop contributing to a retirement account, rocky markets are not one. Tend the vines, even when the weather looks grim.
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