Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here Monday mornings.
Why is $1 million the amount of money you need to retire? Why is it important to earn $100,000 a year?
Humans have an eternal fascination with round “benchmark” numbers. Our ears perk up when we hear the Dow is back above 12,000 and the S&P 500 is above 1,300. We begin to sweat when we learn oil is floating above $100 a barrel and gas is on its way to $4 a gallon.
Here’s the problem: None of those round numbers really matter. I can’t tell you how many people have recently contacted me to say they want to “get back in the market” now that we are above 12,000 on the Dow. There are lots of great reasons to be in the stock market today, but the Dow trading at 12,000 isn’t one of them. Here are three legitimate reasons to be investing in stocks right now:
1. Record corporate profits.
2. The unemployment rate is coming down, consumer confidence continues to improve and last Friday the primary measure of U.S. economic output– fourth quarter gross domestic product — was revised up to 3.1 percent.
3. Big companies are betting serious money that the U.S. consumer is alive and well. AT&T is bidding for T-Mobile and Warren Buffet is buying Lubrizol for almost $10 billion.
As an investor, don’t let a round number pull you into the market – or push you out. Instead continue to dollar-cost average into your 401(k) every single month regardless which direction the market is headed. When the market takes a dip like it did recently because of unrest in the Middle East and the catastrophe in Japan, you are steadily buying stocks at lower prices. Do this over many years and, as long as we get “some” growth in our economy, you will be happy you did so, regardless of what round number the Dow may be trading at in any given month.
It’s also important to maintain flexibility in your retirement planning expectations. Can’t get that nice $1 million round number saved by retirement? I bet you can have the time of your life on the $801,985 you will have banked — not bad for a number that’s not round at all.
What are your specific targets for getting in or out of the stock market and for your retirement savings? Do you find yourself so focused on a number that even game-changing events don’t alter your target?
– By Wes Moss, for Atlanta Bargain Hunter