Why The Bear Market May Be Good For Your 401(k)

The subtext of most stock-market coverage is pretty straightforward: It's good when the market goes up, and it's bad when the market goes down.

As of this morning, stock prices in the U.S. had fallen 20 percent from their recent highs — the definition of a bear market. By the logic of most market stories, this is very bad.

The fall in prices does reflect a growing sense of gloom about the economy's prospects in the coming months. And if you own stocks, it can be painful to see the value of your investment fall day after day.

But in the long run, the decline may be good news for a lot of ordinary people: steady, long-term investors who contribute part of every paycheck to a 401(k), and who aren't planning to retire anytime soon.

Here's why.

When you buy stock in a company, you're actually buying a little piece of all of the company's future profits.

The recent fall in stock prices does reflect investors' prediction that corporate profits will be lower in the next few months, or even the next few years. But the very-long-term outlook for corporate profits — the outlook the next few decades— hasn't fundamentally changed.

If you need to sell your stocks soon, this is cold comfort; short-term prices are what matter from you. But if you're a decade or more from retirement, you may ultimately benefit from the recent decline in prices.

The bear market means that something you buy every month — stocks — just got a lot cheaper. And every dollar you sock away in your retirement fund today gets you a bigger share of all those future profits.

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