Retirement savers who ignored this week’s market turbulence did just fine
If you have an IRA or 401 (k) retirement account and did nothing as the market went on a wild roller coaster ride, you probably did exactly the right thing. Despite wild swings in major market averages during the week, Wall Street is ending up about where it started.
But it took strong nerves for investors to hold the line. Stocks plunged during the week as major technology companies reported weaker-than-expected earnings. Amazon shares fell sharply on Thursday after the company reported lower earnings and tempered its outlook, dragging the market down with it.
Days earlier it was Meta, the parent company of Facebook, that tanked shares by reporting a second straight quarterly revenue decline and warned of another decline in the current quarter.
In particular, Meta’s Reality Labs division, which produces its VR headsets, lost over $9 billion in the first three quarters in its quest to build the metaverse.
The plunge prompted an emotional on-air mea culpa by CNBC’s stock-picking guru Jim Cramer, who told viewers in June to scoop up Meta shares saying it couldn’t go much lower. However, it did.
After all the carnage of the week stocks turned in a strong showing on Friday with the Dow Jones Industrial Average rallying over 800 points. It ended the week just about where it started.
Many market analysts say stocks have rallied recently because investors are becoming convinced that the Federal Reserve is preparing to “pivot” from its aggressive policy of raising interest rates, setting off a massive market rally.
Good news for retirement savers
For retirement savers, this week’s gut-wrenching market may have underscored the value of not making any sudden moves. Retirement savers with 401 (k) accounts actually got some good news during the week. Because of inflation, they can add more to their savings accounts.
The Internal Revenue Service is increasing contribution limits on 401(k)s and IRAs in 2023 to account for the rising cost of living. It coincides with the Social Security Administration’s previous announcement of an 8.7% cost-of-living adjustment for retirees next year.
In 2023, the annual contribution limit for 401(k)s, 403(b)s, most 457 plans, and Thrift Savings Plan is $22,500. That’s a $2,000 increase from the current year. If you are 50-years-old or older you’re eligible for “catch-up” contributions that exceed the $22,500 ceiling.