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Markets and economy

6 tips for the young investor in today’s markets

Learn the best ways young investors can maneuver in challenging, volatile markets.
7 minute read
  •  
November 21, 2022
Markets and economy
Retirement contributions
Budgeting
Save for retirement
Start investing
Article
Page
Investing
Market volatility
Inflation
Retirement

Inflation is up and markets are down. What does this mean for you?

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.

Tips for getting started on your investment journey

The Dos

Start now, start small.

Create a budget for yourself and commit to investing a comfortable amount on a regular basis. For example, you could:

  • Start contributing a little each month into an account dedicated to investing suitable for your situation. Learn more about IRA accounts. 
  • Set up a monthly investment into a high-yield account where you may be able to earn more interest than a standard savings account.

Contribute to your 401(k).

If your company provides a matching contribution, contribute up to the full match. The company’s match is essentially “free money” toward your future that can help you reach your goals sooner—so why miss out? Then consider:

  • Increasing your contribution percentage with each raise you receive.
  • Aim for 10%–15% of your compensation including any company match.

Start an emergency fund.

An emergency fund should cover about 3 to 6 months of your living expenses. Keep in mind:

The Don’ts

Don’t spend your money on trendy investments.

While it may be alluring (who wouldn't want to get rich quick?), jumping on the bandwagon for an individual stock that's momentarily in the spotlight is high-risk.

Don’t stop contributing to your retirement account when markets are volatile.

The sooner money is in your account, the more time it has to grow. Stopping contributions altogether will slow your progress. You work hard for your money; let it work hard for you.

Don’t focus on the value of your portfolio on a single day.

On any given day, the market can go up or down. Instead of stressing over your balance, ask yourself, "When will I need this money?" If the money is for a longer-term goal—say 10, 20, or even 30 years—the value of your portfolio today doesn't matter. 

These are general tips and every investor should consider their own personal situation when making financial decisions.

When’s the best time to start investing? As soon as possible. 

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

Consider partnering with Vanguard

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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.