Senior Financial Advisor
Entering the world of investing can be intimidating, even during the best of times. After all, it's normal to have some hesitation when you're doing something new. But what about when the markets are topsy-turvy?
The truth is, ups and downs in the markets are normal parts of the investment landscape. Read more about weathering volatile markets.
But starting out during a rocky market is not a bad place to be. When you're still in the accumulation phase of your financial life, you're trying to grow your portfolio—by holding growth-oriented, stock-heavy investments, for example. At this stage, you have time to take on more risk because you won't be accessing your money for many years. In short, time is on your side.
A volatile market can be seen as a formidable hurdle. But down markets can be favorable for investors. As the mantra goes, “buy low, sell high.”
If you can start saving for your future when the stock market is down, you give yourself a better chance of meeting your goals. That's because you'll be able to buy more shares at a lower price, which can give you more value over the long term.
The longer you wait to start investing, the more money you'll likely need to invest over time to accumulate the same amount. You could also end up purchasing shares when they're more expensive and miss out on market appreciation.
Time in the market is more important than timing the market.
— Michael Kohler, CFP®
This also could be a great time to dollar-cost average. “Dollar-cost averaging” is the practice of purchasing a fixed dollar amount of a particular investment on a regular basis, regardless of the share price. You'll automatically buy more shares when prices are low and fewer shares when prices are high. This helps you avoid the risk of investing a lump-sum amount when prices are at their peak. With each contribution, your portfolio has the potential to grow—increasing your nest egg.
These are general tips and every investor should consider their own personal situation when making financial decisions.
Remember: How much money you're able to invest each year is one of the biggest factors in achieving your financial goals. And the longer you're invested, the more time your money has to compound and grow.
Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.
— Albert Einstein
All investing is subject to risk, including the possible loss of the money you invest.
For more information about Vanguard funds, obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
Dollar-cost averaging does not guarantee that your investments will make a profit, nor does it protect you against losses when stock or bond prices are falling. You should consider whether you would be willing to continue investing during a long downturn in the market, because dollar-cost averaging involves making continuous investments regardless of fluctuating price levels.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and Certified Financial Planner™ in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
