How to navigate record-high markets
At a glance:
- It’s easier to invest now than ever before.
- Equity markets are hitting all-time highs, attracting new investors every day.
- Vanguard’s investing principles can help you make educated investing decisions that align with your goals.
This past year has brought renewed interest in a variety of activities. For some, it was baking sourdough bread. For others, it was investing in equity markets. Investors opened more than 10 million new brokerage accounts (10 million!) in 2020*—more than any other year. Some of the factors that led to this investing boom developed in a prepandemic world:
- Many brokerage firms lowered or eliminated commission fees for trading.
- Investment education became more abundant on social media channels such as TikTok, YouTube, and Instagram—reaching a broader and more digital audience.
- Mobile applications have come a long way, featuring updated platforms and more accessible user interfaces.
The pandemic also effected change: Long hours alone, lots of time to think, and a mixture of curiosity and boredom led many individuals to start investing on their own because—to put it bluntly—there wasn’t much else to do. Stock market dips in 2020 made stocks cheaper to buy, and some people found themselves with extra cash (hello, stimulus checks!). All of this led to a perfect storm for investors. They charged the investment world with a do-it-yourself, empowered mindset.
What’s more, it seems like every other day, the stock market is closing at record highs. It’s on the news. It’s online. It’s everywhere we look. The prospects of a recovering economy, low market volatility, and increased household spending have led to a rising market, and many new investors are left wondering how much they should keep investing (or if they should continue to invest at all).
For some of you, it may feel like history is repeating itself—interest in the markets and investing waxes and wanes over the years as the markets fluctuate. But our principles are time-tested to help investors build and hold portfolios for the long-term across all market conditions. At Vanguard, we’re always excited to welcome new investors—the second best time to start investing is today—and encourage our shareholders to make decisions based on sound, time-tested investing principles: goals, balance, cost, and discipline.
- Construct clear, fitting goals. Every investor should be intentional with their investment decisions. Creating measurable goals within a realistic reach means you’re already setting yourself up for success in the long run. And when it comes to investing in a hot market, ask yourself: “Does this decision align with my current and future goals?”
- Keep it balanced. While you can’t predict what the market will do in the future, you can offset risk with a diversified portfolio. Your asset allocation should both align with your goals and strike a balance between risk and reward. Simply put, your portfolio holdings should reflect your comfort level with risk while providing an opportunity for returns.
- Look to cut costs as much as possible. Try to stick with low-cost investments so you can keep a bigger piece of your returns. Indexed investments—such as mutual funds—can be an easy, low-cost choice. Remember: When it comes to investing, don’t assume you get more if you pay more.
- Practice disciplined decision-making. Investing can be emotional, and it’s difficult not to react to drastic market increases and decreases. However, staying committed to your diversified portfolio and goals will help you stay on track. Trying to outguess the market rarely works—and can be costly to your portfolio. When market volatility hits, stay true to your vision and invest for long-term success.
Whether you’re new to navigating the markets or a seasoned pro, our investment principles can help guide you to make smart, empowered financial decisions. Learn more about selecting an asset allocation that will balance risk and return while meeting your goals.
* Susan Tompor, 2021. Why new investors bought stock during the COVID-19 pandemic
All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
Diversification does not ensure a profit or protect against a loss.