By Gene Walden

With the recent turbulence in the economy and the financial markets, a lot of investors are becoming increasingly concerned about their retirement savings. According to a government report, the recent drop in stock prices erased almost $2 trillion dollars from retirement savings accounts.

How should you react to the financial crisis? Although many worried investors may be cashing out of the investment markets and parking their money in a cash account, most financial experts would advise against panic selling.

Continue to take a long-term approach to the market can help you maintain your investment. The stock market typically goes through a series of ups and downs. Investors who sell after a large market drop tend to do worse over the long-term than buy-and-hold investors because the panic sellers miss out on gains when the market recovers.

If you have been using a dollar-cost-averaging strategy to build your retirement savings, you may want to continue to stick with that plan.

How does dollar-cost-averaging work? Dollar-cost-averaging means that you contribute the same dollar amount to your investments every month or every quarter rather than trying to time the market with periodic buys or sells.

Dollar-cost-averaging takes the emotion out of investing since you invest the same amount no matter what the market conditions might be. The strategy relies on the volatility of the market to ensure that the investor automatically buys more shares of a stock or mutual fund when the market is down and fewer shares when it’s up.

For instance, let’s say you invest $100 a month in a stock or mutual fund. When the market is high and shares are trading at, for example, $25 a share, your $100 will pay for four shares. If the market drops and the shares are trading at $14, your $100 investment would buy about seven shares. So you’re buying more shares at the low point and fewer shares at the high point.

Best of all, you can set up a dollar-cost-averaging plan to have the money automatically invested each month through a checking account deduction plan so you never have to think about making the investment yourself. It takes the emotion out of investing because the investments are made for you automatically.

Talk to your financial advisor about your investment plan and see if dollar-cost-averaging would be an appropriate investment strategy for you.

Note: Such a plan involved continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through periods of low price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.