Like everyone else, my wife and I are practicing social distancing until the coronavirus pandemic is under control. We stay at home and only go out when absolutely necessary. Our only concession is that we have our two adult children over for dinner every Saturday night. They don’t have anything else to do at the moment and neither do we.

While chatting with them over the weekend, the subject of their 401k plans came up. They wanted to know if they should still be contributing to their accounts in light of the stock market’s recent meltdown.

“Are you kidding?” I roared in response, “This is precisely the time that you should be maxing out on your contributions. The best time to buy into the stock market is while it is crashing!”

Both of my kids are smart, well educated, and very rational thinkers. The fact that they were second-guessing their 401k plan contributions made me realize just how emotionally upsetting this experience is for everyone.

Rather than trying logic to prove my point, I decided to use a spreadsheet to make my case. To illustrate, I assumed three possible scenarios that could unfold over the next 10 years.

In each example, we assumed the same dollar amount ($10,000) would be contributed on an annual basis into the same investment. The only variable was the assumed rate of return on the investment each year over the next decade.

To keep the math simple, we assumed that the contribution was made at the start of each year into a single mutual fund. Further, we assumed that the net asset value (NAV) of that fund went up or down in price each year based on the annual “Return” assumed under the scenarios outlined below.

Scenario 1: “Feels Good”

Everyone loves to see the value of their 401k account keep going up every year. That’s what I call the “Feels Good” scenario since there is never a reason to question if it was the right thing to do.

Under this scenario, we assumed the investment appreciates 10% every year. At the end of the first year, your original $10,000 is now worth $11,000. Plus, you contribute another $10,000 for a total account value of $21,000 at the start of the second year, and so on.

Here is how that scenario plays out over 10 years:

You will notice that the number of New Shares bought each year decreases as the NAV of the fund keeps going up. By the eighth year, your $10,000 buys less than half as many shares as it did at the very beginning. Nevertheless, 10 years later you have a total account of $185,312 so you’re feeling good about your decision to fund your 401k plan.

Scenario 2: “Feels Okay”

Under this scenario, every other year the NAV of your mutual fund increases by 10%. The years in between, it does not appreciate in value at all. So, you aren’t sure if this is really a good idea. That’s because the NAV of the mutual fund does not rise as fast as it does under the first scenario. However, that also means that your $10,000 contribution every year is able to buy more shares in the long run.

As a result, you own more shares 10 years later, albeit at a lower NAV. You might assume that since the NAV is nearly 40% less under this scenario that the Total Value would be comparably less. However, that is not the case. Under this scenario, your ending Total Value of $144,312 is only 22% less than it would be under the first scenario.

Scenario 3: “Feels Bad”

This is the scenario that keeps everyone up at night. In this case, the NAV of your mutual fund drops by 10% every year for the first five years. Then, it finally reverses course and increases by 10% annually for the next five years. Ten years later, the NAV of your fund is less than it was at the very beginning. You feel sick about all the money you wasted and wish you had done something else with it.

You may be surprised to learn that your ending Total Value of $136,513 is only 26% less than it would have been under the “Feels Good” scenario. How can that be? The answer is the power of dollar-cost averaging (DCA), which results in you buying more shares when they are cheaper and fewer when they are more expensive. In the end, you own a lot more shares than you would under the first two scenarios.

Also read: Dollar-Cost Averaging: The Investor’s Cure to Coronavirus

Playing the Long Game

Under all three scenarios, your decision to participate in a 401k plan is a good one. Yes, some scenarios are better than others. But ultimately, thanks to dollar-cost averaging, you still end up ahead of the game.

Now, what happens when you get a huge drop in the NAV followed by a long-term recovery? In the near term, the value of your 401k account takes a big hit. But for younger investors like my kids, they don’t have that much money in it yet so in absolute dollars the loss isn’t that great.

Over the next decade, they will be putting more money into their retirement accounts. So, they will benefit more from the lower NAV now and subsequent growth later as long as they keep participating. On that score, I think I made my point with them.

Of course, there is no way of knowing just how long it will be until the stock market begins its recovery. It may have started last week, or it may not get going until next year. Either way, you can profit from the market, provided you maintain a disciplined approach to managing your investment account.

Another way to profit from the stock market during uncertain times is to follow the advice of my colleague, Jim Fink.

Jim Fink, chief investment strategist of Velocity Trader, is a seasoned veteran of Wall Street who over the decades has witnessed bull and bear markets, economic booms and busts. And through it all, he has consistently made money for his followers.

Jim achieves trading success via his proprietary trading system, called the Velocity Profit Multiplier (VPM). The product of painstaking trial and error, the VPM can predict when a stock is about to rise, or fall, with remarkable precision.

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