The Stock Market Is Plunging. Should You Keep Funding Your Retirement Account?

A tumbling stock market has many Americans worried about their retirement portfolios. And if you feel similarly, that's quite understandable.

Even if you've been through a stock market downturn before, it can be extremely difficult to sit back and watch your portfolio value plunge day after day. And if you're feeling helpless and scared, you're not alone.

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But should the stock market events of the past week push you to stop funding your retirement account? Not at all.

Try to keep your cool

It's not easy to avoid panicking when the stock market plunges. But one thing to remember is that if you're years away from retirement, events like these should not change your long-term strategy.

If you're closer to retirement, you do need to be more careful to protect yourself from a stock market downturn. That means having one year's worth of living expenses in cash. That way, if you need to ride out a longer wave of volatility, you'll be able to leave your portfolio untouched without locking in losses.

Even if you're many years away from retirement, it's important to maintain a cash emergency fund with enough money to cover three to six months of essential living expenses. But beyond that, it's a good idea to keep pumping money into your retirement account, whether it's an IRA or a 401(k) plan through work.

In fact, now's actually a good time to buy stocks because values are down. And if you keep saving and investing for retirement now, you'll give yourself more time to enjoy the benefits of an eventual market recovery.

Plus, don't forget the tax benefits of contributing to an IRA or 401(k). With a traditional IRA or 401(k), the money you save exempts some earnings from taxes, potentially leaving you with a smaller IRS bill.

Also, many employers offer matching dollars in their 401(k) plans. If you decide not to invest or contribute more this year due to recent stock market volatility, you could end up missing out on that free money, which is really a shame.

It's best to think long term

It's easy to get rattled by a stock market decline, even if you're a seasoned investor who's seen things like this happen before. But remember, if retirement is a ways off, you have time to recover from a market downturn -- even if that recovery isn't a particularly quick one.

What you should do, though, is make sure you've got the right protection against further market turbulence. In addition to having cash on hand, make certain your retirement portfolio is well-diversified.

Also, check your asset allocation. You don't want to be too loaded on up on stocks, for example, if retirement is a few years away.

Of course, the best time to rebalance a portfolio is usually when the market is up, not down. But that doesn't mean you can't adjust your portfolio as necessary in the coming weeks if you deem that necessary.

All told, the market is clearly going through a shake-up. And the hard thing is that we don't know when it will be over and when portfolio values will recover.

But your best bet is to stick to your long-term plans and keep funding your IRA or 401(k). If you continue investing, you're likely to come out a winner in the long run.

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