American retirement portfolios took it on the chin last year.
The average workplace retirement plan balance plunged from $144,280 to $111,210 by the end of 2022, according to a new report from human resources consulting firm Alight.
The decline should be no surprise: 2022 ranked as one of the worst years that the stock market has ever seen. Watching retirement savings drain away was no doubt painful for millions of investors.
But the good news is that the stock market has rallied strongly in 2023 and is once again approaching new all-time highs.
That roller-coaster ride offers an important lesson: Even in years when your portfolio takes a nosedive, you haven’t really “lost” anything unless you sell and make your losses permanent.
As a group, investors appear to understand this concept. During the year of falling stock prices, just 3% of participants stopped contributing to their retirement plan, Alight says.
In fact, the number of people who increased contribution rates during 2022 was more than double the number who cut back. That suggests that most investors fully understand that if you are going to invest, you have to play the long game.
It is impossible to say with any certainty what the future holds for stocks. It’s possible that those who kept pouring money into the market last year will regret their decision, particularly if the stock market goes through a brutal, prolonged decline.
However, history suggests that investors who bought stocks during their nadir will be richly rewarded for that decision in the future.
In the end, only time will tell if continuing to invest last year was a wise decision. If you are ready to embrace investing in stocks — with all its ups and downs — check out: