It's Not a Game: The Role of the Patient Investor

In January, amateur traders pushed up the stock price of GameStop, a struggling video game retailer, and pocketed big profits over a matter of days or weeks. Just as quickly, hedge funds that shorted the stock — a bet that its price would fall — experienced losses in the billions. This type of stock price movement is not typical and investors should not focus on the news meant to attract ratings rather than savings.

Investing isn't a game, but it can help you reach your retirement goals if you're patient and invest consistently over the long term. 

Let's say you invested $10,000 in the S&P 500 index in March 2011, then continued to invest $200 per month along with any dividends you earned. By March 2021, you would have invested $34,000, according to investing website DQYDJ. But your balance (excluding management fees) would have grown to $85,318 — for an annualized return of 13.8%.¹

Besides patience, here are other dependable ways to reach your retirement goals:

Don't time the market. If you're trying to decide the best time to enter the stock market, you might sit on the sidelines too long and miss out on the gains. Instead, take the guesswork out by dollar-cost averaging.²

With this strategy, you invest a set amount of money each month or pay period, regardless of what the market is doing. You'll end up buying more shares when stock prices are low and fewer shares when they're expensive. See how this can work for you by reading Taking the Guesswork Out of Investing in Volatile Markets.

Maintain a diversified stock portfolio. By spreading your money over different types of stocks and bonds, you can limit the damage if one or more of them tanks.

If you don't want to manage your own portfolio, consider a target-date fund.³ You choose the fund with the date closest to your year of retirement, and a professional money manager does the rest — from choosing the investments to gradually adopting a more conservative portfolio as retirement nears. Learn more by reading Simplify and Diversify: Target-Date Funds.

Boost your savings. A general recommendation is to save 15% of your gross pay annually — including any employer match — to have enough money to maintain your lifestyle in retirement. For workers with a pension, the percentage could be lower. If you're not quite there yet, consider increasing your contributions each year by at least 2 percentage points, until you reach the 15% savings rate.

Raising your contributions may have less of an impact on your paycheck than you think. That's because your pre-tax contributions to a retirement plan reduce what you pay in taxes today. For example, say you earn $60,000 a year and contribute $200 a month to your retirement plan. If you doubled contributions to $400, your monthly income would be reduced by $156 not $200. See how raising your contributions will affect your take-home pay using our Paycheck Calculator.

Get answers to your questions about investing. Connect virtually with your ICMA-RC Retirement Plans Specialist.

¹Past performance is not indicative of future results. It is not possible to invest directly in an index. The performance of an index is not an exact representation of any particular investment.

²Dollar-cost averaging does not assure profit or protect against a loss in a declining market. Since dollar cost averaging involves continuous investing, regardless of fluctuating prices, investors must consider their level of comfort in continuing to invest during a declining market.

³A target-date fund is not a complete solution for all of your retirement savings needs. An investment in the Fund includes the risk of loss, including near, at or after the target date of the Fund. There is no guarantee that the Fund will provide adequate income at and through an investor's retirement.