Morning Star Amy Arnott
In the midst of this year’s market turmoil, I’ve heard investors wonder if they should pause with a 401(k) donation until things settle.
This approach sounds engaging, but it’s better to stick to your investment strategy rather than wait for conditions to improve.
Run the numbers
To test how the “viewed as a wait” approach has progressed compared to continuing to invest, I saw four different market slumps in the 21st century.
In both cases, we examined the results in two different scenarios. They are investors who started saving $500 a month and continued to do so throughout the recession, and others who stopped saving until the market began to improve. I assumed that all contributions were invested in stocks. (In the first four cases below, I assumed that the contribution was suspended only in the Bare market in question and resumed all subsequent periods.)
Case 1: March 2000 – October 2002
The stock suffered a cumulative loss of approximately 33% from the beginning of 2000 to October 2002. However, the number of investors began investing $500 a month in March 2000, and as of March 31, 2025, the number of investors continued to cause confusion is around $700,000.
Meanwhile, “wait and look” investors have around $573,000.
Case 2: October 2007 – February 2009
The 2008 market slump was the second calendar year for stock investors in recent market history.
We began investing $500 a month in October 2007, and as of March 31, 2025, approximately $360,000 of investors have continued to invest each month.
Case 3: February and March 2020
Due to the Covid-19-led market slump, the broad stock market index has reduced its value by approximately 34% since February 19, 2020.
However, after this sharp decline, the rebound has been even more impressive, with the stock’s earnings of 28.7% in 2021. As a result, investors who “continue buying” would have been slightly ahead by March 2025, even after suffering from the slump in 2022 and early 2025.
Case 4: January 2022 – October 2022
The market reversal in 2022 was a sharp response to an unexpected surge in inflation in 2021, followed by a series of aggressive interest hikes. As a result, the Morningstar US Market Index lost about 19% from January to October of that year.
However, thanks to the dramatic rebounds in the market, investors who “keep buying” would have finished around $7,000 by March 2025.
Case 5: January 2000 – March 2025
The differences are even more dramatic over a longer period.
For this analysis, I assumed that investors would start giving $500 a month in January 2000, pause during each of the four slumps above, and resume their contributions after the market hit bottom.
But even in this seemingly ideal scenario, a consistent contribution won. The consistent 401(k) contributors are nearly $200,000 ahead of Stop-Start investors.
reason? Consistent contributions meant there was more dollars to profit when the market recovered, and a pause in contribution meant the opposite. And shock becomes a compound over time.
The “wait and see” investors would have skipped with a 61-month donation totaling $30,500, but ended up with a balance of about $184,000 less than the “continue buying” approach.
Why Retiring Savings Shouldn’t Give Up
These examples insist on sticking to the plan, even in the bear market. However, this analysis probably exaggerates the results of investors who “wait and see” because they assume that they somehow knew when the market would begin to recover.
Not only is it difficult to get the market recovery right, but keeping money on the bystanders means betting on the odds. Statistically speaking, the market is rising more than it goes down. It’s not fun to watch a 401(k) lose, but it changes in the end.
This article was provided to the Associated Press by Morningstar. For more personal financial content, visit https://www.morningstar.com/personal-finance
Amy Arnott is a portfolio strategist for Morningstar.
Original issue: June 17th, 2025, 2:05pm EDT
