Saving for retirement isn’t easy, especially as costs continue to rise. According to a 2024 survey conducted by Charles Schwab, the average worker anticipates needing about $1.7 million to achieve a comfortable retirement, which can be a daunting figure for many.
It’s especially difficult to invest when the stock market is rocky, and many workers have watched their retirement funds shrink over the past year. But there’s one lesson from legendary investor Warren Buffett that can help you save more over time while minimizing risk.
The stock market is safer than it seems.
When you’re saving for retirement, investing only when the market is thriving can be tempting. After all, when stock prices are sinking, it often feels like you’re throwing money away.
However, one of the best ways to maximize your savings over time is to continue investing consistently, even when the market is shaky.
In 2008, at the height of the Great Recession, Warren Buffett wrote an opinion piece for The New York Times to help reassure nervous investors. In it, he explained that, while it may seem counterintuitive, staying in the market is wise despite volatility.
Buffet said that a simple rule dictates his buying. Be fearful when others are greedy and when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.
He went on to write:
There is no reason to be concerned about the future success of the country’s solid businesses. Although some businesses may experience temporary setbacks in their earnings, as they have done in the past, most large corporations are projected to achieve new profit milestones in the next 5, 10, and 20 years.
A long-term outlook is key right now.
There’s still a chance the market has further to fall, especially if we face a recession later this year. But the market’s long-term potential is far more important than short-term volatility.
Historically, the market has earned positive average returns over time, despite facing significant ups and downs in the near term. In the past two decades alone, the market has endured periods of instability, including the dot-com bubble burst and the Great Recession—the crash in the early stages of the pandemic and the current downturn. Despite everything, the S&P 500 is still up by nearly 200% since 2000.
The best way to take advantage of these gains is to invest consistently, regardless of what’s happening in the market. Your portfolio may take a hit in the near term, but as Buffett accurately predicted back in 2008, most healthy companies will thrive over decades.
Keeping your retirement savings safe
Continuing to invest during market downturns can help you save more over time, but ensuring your investing strategy aligns with your timeline is equally important. As you get closer to retirement, it’s a good idea to double-check that your asset allocation is appropriate for your age.
Asset allocation refers to the way in which your investments are distributed throughout your portfolio. When you still have decades left to save, you can afford to invest more heavily in stocks. If your savings take a hit during a downturn, you have plenty of time for your investments to recover.
As you get older, however, you may want to shift your portfolio gradually toward bonds and other conservative investments. Bonds generally earn lower returns than stocks but are less impacted by market volatility. This is important when you’re planning on needing your retirement savings shortly.
Saving for retirement can be challenging when the market is uncertain, but it’s crucial to keep a long-term outlook. By continuing to invest consistently and staying focused on the future, you can protect your retirement while maximizing your savings.