Every time the stock market has a rough year, my inbox fills up with the same question. It usually sounds something like this: “The market keeps going down. Every time I put money into my retirement account, it shrinks. Shouldn’t I stop contributing, hold my cash on the side, and start again once things look better?”
I get it. Watching your balance drop month after month feels awful. When most accounts are down 20% or more for the year, pausing your contributions can seem like the safe, sensible move.
The short answer is no. You probably should not stop or cut back what you put into your retirement account just because the market is down. In this post I’ll walk through why, using simple math, a couple of everyday comparisons, and a few examples you can check against your own statements.
Why stopping contributions in a down market works against you
You’ve heard the old saying “buy low, sell high.” It’s the most basic rule of investing. Stopping your contributions when prices fall breaks that rule.
When the market goes down, the money you put in buys investments at lower prices. That is buying low. Years later, when the market has come back up and you’re closer to retirement, you can sell those same investments at higher prices. That is selling high.
If you stop contributing when prices are low and start again once prices recover, you flip the rule around. You skip the sale and wait to pay full price. Nobody would plan it that way on purpose, but that’s what pausing does.
You are a long-term investor
If you’re saving in a 403(b), the Washington State Deferred Compensation Program (DCP), or a Plan 3 investment account, you are investing for years or decades. One bad year doesn’t mean you need to jump ship and change your whole plan. The goal is to stay consistent through good years and bad ones.
Think about how long your money will actually be invested. If you’re 45 and plan to retire at 62, your contributions this year have 17 years to grow. Even after you retire, a lot of that money stays invested for another 20 or 30 years. A single down year is a small piece of that timeline.
Be greedy when others are fearful
Warren Buffett famously said to “be fearful when others are greedy, and greedy when others are fearful.” In a down market, almost everyone is fearful. The news is full of recession worries, world events, and upcoming elections. Nearly every headline points to the negative.
Buffett’s advice is to do the opposite of the crowd. So instead of cutting back, ask whether you can put more money away. Contribution limits for retirement accounts usually go up over time, and a down market is a good moment to check whether you’re using as much of your limit as you can afford.
Focus on shares, not your account balance
A big reason this feels so hard is that we can’t see what’s happening behind the scenes. When you invest, you are buying shares. Your statement shows a dollar balance, so that’s what you watch. But the dollar balance is only half of the story.
Here’s the other half. Even while your balance is down, the number of shares you own keeps going up. And when prices are lower, each paycheck contribution buys more shares than it did before. Your dollar goes further.
This has a name: dollar cost averaging. You put in the same amount on a regular schedule, no matter what the market is doing. When prices are high, you buy fewer shares. When prices are low, you buy more. Over time, your average cost per share ends up lower than the average price.
A worked example of dollar cost averaging
Let’s say you put $500 a month into a fund. Over six months the price drops from $50 a share down to $35, then climbs back to $50. Here’s what your contributions buy.
| Month | Share price | Amount invested | Shares bought |
|---|---|---|---|
| 1 | $50 | $500 | 10.00 |
| 2 | $40 | $500 | 12.50 |
| 3 | $35 | $500 | 14.29 |
| 4 | $40 | $500 | 12.50 |
| 5 | $45 | $500 | 11.11 |
| 6 | $50 | $500 | 10.00 |
| Total | $3,000 | 70.40 |
At the end of month six, the price is back where it started at $50. Your 70.40 shares are worth about $3,520. You put in $3,000, so you’re up about $520, even though the price only got back to where it began.
Your average cost was about $42.62 a share. The months when the price was low did the heavy lifting. Month three alone bought over 14 shares for the same $500 that bought just 10 in month one.
Now compare that to someone who paused
Now picture a second person with the same $500 a month. They invest in month one. Then the market drops and they get nervous, so they hold their money in cash for months two through five. In month six things look better, so they put all $2,500 they saved up into the fund at $50 a share.
| Investor | Total invested | Shares owned | Value at $50 |
|---|---|---|---|
| Kept investing every month | $3,000 | 70.40 | About $3,520 |
| Paused during the drop | $3,000 | 60.00 | $3,000 |
| Difference | $0 | 10.40 | About $520 |
Both people put in the exact same $3,000. The one who kept going owns about 10 more shares and has about $520 more. The person who paused missed every sale price and bought everything at the higher price. Stretch that over a 20 or 30 year career and the gap gets much bigger.
Check your own share count
Here’s something that might make you feel better. Pull up a recent statement and look at how many shares (some plans call them units) you own. Then look at a statement from last quarter or last year. You’ll likely see that you’re buying more shares per paycheck now that prices are down.
This is hard to notice because everything is digital now. Before computers, when you bought a stock you got a paper certificate. You could hold it in your hand and count it. Today you don’t see anything physical, but you’re still piling up shares every time you contribute.
Your account can recover before the market fully does
Because you keep buying more shares while prices are low, the market doesn’t have to get all the way back to its old high before your account gets back to where it was. Each share doesn’t have to be worth as much, because you have more of them.
Here’s a simple example. Say you start the year with 1,000 shares at $100 each, so $100,000. The market falls and the price drops to $75. You keep contributing $1,000 a month, and over the year you buy shares at an average price of $80. That’s 150 new shares.
| Start of year | End of year | |
|---|---|---|
| Shares owned | 1,000 | 1,150 |
| Price needed for a $100,000 balance | $100.00 | About $86.96 |
| Price needed for a $112,000 balance (starting value plus new money) | $112.00 | About $97.39 |
To be fair, part of that comes from the $12,000 you added. But look at the last row. Even counting every new dollar you put in, your account is back to even before the share price returns to $100. Buying shares on sale is what makes that possible.
Think of a down market like a grocery store sale
We all go to the grocery store to buy things we need. Once in a while, something we use all the time is on sale. When that happens, most of us buy it, or buy extra, before the price goes back to normal.
The stock market works the same way. When the market is down 20%, stocks are 20% cheaper than they were. It’s a sale. Instead of being scared off, do what you’d do at the grocery store and stock up.
Stopping your contributions during a down market is like walking in for a gallon of milk, seeing it’s a dollar off this week, and saying, “No thanks, I’ll come back next week when the price is better.” It sounds silly when you put it that way. But that’s exactly what pausing your retirement contributions does.
You’ll see the same idea in the candy aisle. “Buy three, get one free” makes us grab an extra bag. A falling market is like a “buy five, get one free” deal on stocks, and you don’t even have to clip a coupon.
What if you’re close to retirement?
A down market feels scarier when retirement is only a few years away. If that’s you, please know you’re not alone. I get emails with this exact worry every single day. Almost everyone is going through the same thing at the same time.
Being close to retirement is a reason to look at your overall mix of investments and your income plan. It is usually not a reason to stop saving. Your contributions in your last working years can still buy shares at lower prices, and some of that money may not be spent for another 10 or 20 years.
Why an advisor helps most in years like this
We’re all human. We all have bad ideas from time to time, especially when we’re scared. Often the only thing standing between you and a bad idea is an advisor or someone you trust who can help you think it through. One bad move can undo years of good financial planning.
That’s why an advisor’s job is a lot more than picking which investments to buy and sell. A big part of the value is the emotional and behavioral side: helping you stick to your goals and keep investing when your gut is telling you to run. I do this for clients all the time, because they’re human and these ideas come up.
Advisors need this too. I meet with other advisors in mastermind groups where we bounce ideas off each other, both for business and for our own money. When we make investment moves, we have someone to check our thinking so we don’t make big mistakes on our own.
Financial advice is hard to put a price on because you can’t hold it in your hand. But think about the example above. Staying invested and buying through a downturn can mean thousands, or even tens of thousands, of dollars more over time than pulling money out or cutting back. Good advice is often worth far more than the media suggests.
If a down market has you second-guessing everything and you’d like to talk it through, you can schedule a personal meeting with us here. We’ll look at your accounts, your timeline, and whether your current mix of investments still fits you.
Make sure your investments match your risk level
Keeping your contributions going is step one. Step two is making sure the money is invested the right way for you. Ask yourself a few questions:
- Am I an aggressive investor, middle of the road, or conservative?
- Does my current mix of investments match that?
- Should anything change based on how close I am to retirement?
- Do I know which buttons to click in my DCP or 403(b) account to make a change?
If you’ve never managed your own investments before, don’t worry. It’s easier than most people think. It may take a little time to learn where things are at first, but once you get the hang of it, a quarterly check-in might take 10 minutes. Spending 30 or 40 minutes a year on your retirement account can be well worth it in the long run.
Frequently Asked Questions
Should I stop investing in my 401(k), 403(b), or DCP when the market is down?
For most long-term investors, no. When the market is down, each contribution buys more shares at lower prices. Stopping means you miss those lower prices and start buying again only after prices have gone back up.
What is dollar cost averaging?
Dollar cost averaging means investing the same dollar amount on a regular schedule, like every paycheck. You automatically buy more shares when prices are low and fewer when prices are high. Your retirement plan contributions already work this way.
Should I put more into my retirement account during a downturn?
If your budget allows it, a down market can be a good time to raise your contributions. You’re buying at sale prices. Just make sure you still have an emergency fund and aren’t stretching yourself too thin.
How do I see how many shares I own?
Look at your account statement or log in to your plan’s website. Most plans show the number of shares or units you hold in each fund. Compare it to an older statement to see how much your share count has grown.
Does my account need the market to fully recover to get back to even?
Not if you kept contributing. Since you bought extra shares at lower prices, you own more shares than before. That means each share doesn’t need to reach its old price for your balance to get back to where it was.
I’m a few years from retirement. Is it different for me?
Your investment mix and income plan matter more as you get close to retirement, so it’s worth reviewing them. But stopping contributions usually isn’t the answer. Much of your money will stay invested well into retirement, so it can still benefit from buying at lower prices.
The bottom line
When the market is down, keep investing. If you can, invest more. Watch your share count, not just your balance. Remember that you’re a long-term investor, and that a down market is a sale. Your future depends on what you do today.
P.S. Want more help staying on track through markets like this? It’s free to join. Over 150 members are already in it, plus you’ll get free courses and resources to help you plan your retirement with confidence.
