If, like me, you remain a believer in the long-term potential of the stock market, you can still invest without risking it all. Let's say that, for safety reasons, you've been keeping most of your money in cash investments. Now, with stock prices lower than we've seen in years, you want to get back in, but you still have some market jitters. Why not invest a little at a time?
You could start small by investing just 25 percent of your cash in a diversified mix of stocks. That way, when the market starts to go up again, you're in a position to benefit. At the same time, you're still protecting a good portion of your savings from ongoing volatility by keeping it in less risky holdings. Check your investments regularly. As time goes on, you can always decide to increase -- or decrease -- the stock percentage of your allocation to keep it in line with your risk profile. This way you'll feel in better control -- both financially and emotionally.
Don't stop saving.
Whether or not you decide to stay invested in the stock market, it's absolutely essential that you keep saving, especially for retirement. So don't stop contributing to your 401(k) or your IRA. Realize, though, that by investing in the stock market regularly over months, you can take advantage of "dollar-cost averaging," automatically purchasing more shares when prices are low and fewer shares when prices are high. Over time, this can help lower your average share price.
On the other hand, if you decide not to invest new money in stocks, most 401(k) or similar employer-sponsored plans have a cash equivalent investment choice, such as a money market fund. You'll still get the boost of an employer match -- and the potential to gain from compounding.
The same goes for your IRA. You're in charge of your savings, and you make the investment choices. Whether you invest your IRA aggressively or conservatively, it's still money that's growing for your future.
Keep your eye on your goal.
In tough economic times, it's easy to get distracted by immediate financial concerns to the detriment of your long-term goals. Keep looking forward. And don't hesitate to talk to someone about your fears, your desires and your choices. Stay in touch with your financial advisor if you have one. Your 401(k) may also have a plan advisor who can help you understand your alternatives.
A little perspective -- and a little reinforcement -- can go a long way in easing your worries. Realize that you're not just a victim of market movements. Even if your portfolio has suffered in the past year, you still have control of how you invest in the future. You just need to take it.