You often hear advice on how to time the market or make quick profits before an inevitable market downturn, but this information is not usually helpful for the average long-term investor. With so much conflicting advice bombarding you, it’s easy to make decisions based on fear rather than logic.
One effective way to deal with this volatility is to focus on consistent investing over time, regardless of market highs or lows.
Let the market work for you.
Consistency is key in the stock market, where small, regular investments typically outperform larger, sporadic ones. When the market starts to decline, it may be tempting to deviate from our plan and undermine the passive gains we have made.
By investing consistently and early, you provide the stock market with the best chance to grow your wealth. Reacting to every market fluctuation wastes energy, and if you sell, you risk missing out on potential gains during the next upswing.
During the 2008 recession, many people sold at the market’s lowest point and missed out on significant gains during the extended stock market rebound. Instead of reacting impulsively to daily, weekly, or monthly market changes, leave your investments untouched for as long as possible to allow them to grow.
Consult a financial advisor to determine the best strategy based on your risk tolerance, and use these tips to help you stay the course, even when challenges arise:
Listen to your instincts.
Don’t let advice from online or TV investing “experts” override the careful planning that went into your investment strategy. Consistent monthly investments can yield higher returns and free up mental space for other pursuits.
If you need to adjust your strategy, trust your intuition and seek guidance from a certified financial professional before making significant changes to your investments.
Ignore the headlines.
It may be tempting to constantly monitor market updates and track every gain or loss when you’re invested in stocks. However, consistent investing over time helps you stay committed to allocating the same amount monthly to your investments. Eventually, this routine becomes second nature, alleviating panic during market fluctuations.
By incorporating a monthly contribution into your budget, your investments become a priority, providing confidence in your financial plan. Knowing that you are steadily growing your investment accounts can give you peace of mind, regardless of the day’s news.
Prioritize the long term.
We’ve all heard stories of individuals striking it rich in the stock market overnight. While this may be an appealing fantasy, focusing on long-term goals will better serve your financial aspirations.
Consider ways to boost your monthly contributions gradually. Beginning to invest consistently at a young age will likely yield greater returns in the stock market than making a large investment later in life due to compound interest.
We have prepared the following examples to illustrate the importance of long-term investing using a compound interest calculator.
- An initial $10,000 investment with monthly additions of $100 for 20 years at a 6% interest rate could potentially grow to around $76,214.
- The same $10,000 initial investment with $100 monthly contributions over 10 years (half the time in the market) may only amount to approximately $33,725.
In this scenario, starting investing 10 years earlier could potentially result in over a 50% higher return in the stock market.
If you missed the opportunity to invest in your younger years, there is still time to secure your financial future. Work with a certified financial planner to develop a strategic plan tailored to your life circumstances.
Remember that market fluctuations are normal, and by focusing on a long-term strategy rather than short-term volatility, you can find peace of mind. Stay consistent in your investment approach and explore ways to gradually increase your monthly contributions for long-term success.
