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401(k) investors can benefit from stock market dips amid COVID-19


Thursday afternoon as I stared at my computer screen awash in “up” arrows after three of stock market rallies and over 21% in gains, I saw a headline pass that read something like, After the fastest bear market in stock market history, we have entered the fastest bull market in history.  

But the next day the Dow Jones industrial average fell just over 4%. 

Welcome to the most volatile market in memory.  

When volatility is minimal and stocks are rising, 401(k) investors are forced to pay ever-higher prices. But when volatility reigns, like now, 401(k) investors can actually benefit from adding to holdings in great companies that are suddenly selling at a discount. 

When volatility is minimal and stocks are rising, 401(k) investors are forced to pay ever-higher prices. But when volatility reigns, like now, 401(k) investors can actually benefit from adding to holdings in great companies that are suddenly selling at a discount.

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What holds investors back are the frightening days when stock prices dive. When everything is selling  — when panic sets in — it is difficult to invest. The old adage, throwing good money after bad comes to mind. But remember how the game works with big institutions driving short-term trading. They employ program trades driven by computer-generated algorithms to trade baskets of stocks in massive volumes —sometimes as much as half of the daily volume at the New York Stock Exchange. This means that in the short-term, the trading programs, not necessarily the underlying fundamentals, drive stock prices. 



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