Monday, July 13, 2015

Why is Greece’s volatility affecting your 401-k?

The stock market is a tricky beast, and like many things these days, there’s an overabundance of information that can make the usual tide of the stock market ebb and flow much more turbulently than it would otherwise. There are a variety of reasons for this, including individual investors’ access to near-instant company information, the ubiquitous use of computer modeling in investment strategy, and some would argue, no legitimate reason whatsoever. All these are real reasons for volatility, as has been proven out over the last 20 years, as internet and computer-based trading has gained ground and eventually overtaken the world of stock trading all together.

The reality of Greece’s problems on the European stage may not seem to have all that much effect on the overall U.S. Economy, but given that computer algorithms now make trades every millisecond to edge profits up by tiny amounts at a time, it isn’t difficult to see how those computer programs would edge down the overall value of an investor’s 401-k, and even the stock market as a whole. 

This is nothing more than current investor sentiment. Big investors are twitchy and don’t want to commit large amounts of money when they sense that the market is dropping, which facilitates that drop. Likewise, individual investors who have unprecedented access to their accounts to make minute-by-minute trades can make it seem that the stock market is falling at a faster clip than it would otherwise. The biggest trick is telling yourself and making yourself believe that this is only a temporary dip. Even if Greece fails to follow through on their debt obligations, that won’t spell the end for the American economic system. At worst, it will be a blip, and for savvy investors, a great opportunity to buy good stocks at great prices, particularly if you’re used to investing in relatively safe funds. 

One of the most important things to remember is to avoid allowing yourself to be scared out of the market when it’s low. If your 401-k still has 20 or more years to grow, then you can rest assured that you’ll get what you have appeared to have lost over the last few weeks back, and then some. If your retirement is coming up in the next year or two, then consult your financial advisor, but you’ll likely be all right once Europe stabilizes again, and Greece figures out what they’re going to do about making nice with their creditors. Whatever you do, however, don’t act rashly. That in itself is the single most effective way to lose every gain you’ve ever made on your 401-k account. Remember, slow and steady wins the race.

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