Why You Should Keep Investing Even When Markets Are Down
As investors during a decline in the market, it is difficult to remember why we decided to take the risk of investing. In its best days and its worst days, the stock market draws the most attention, but there is one surefire way to keep trading worth your time: Stick it out for the good and the bad. If you plan for the long-term, don't panic. Instead, here are 3 reasons to keep investing, even in the worst of times.
1. Dollar cost averaging is potent in market downturns
If you invest part of your income into a corporate savings fund or make monthly contributions into a mutual account, you are still utilizing a dollar cost average type. It's a powerful trading technique that not only defends you from market fluctuations but also keeps you disciplined. This works particularly well when you don't have to spend a huge lump sum of capital. Through placing a set dollar sum into the same fund every month, regardless of where the rates are, you buy into the business. This reduces the temptation to "time the market" and making an emotional or risky bet. In time, you purchase more equity options at a cheaper price which ensures further profits as the value eventually increases again.
2. The market's strongest days tend to follow it's weakest
You typically have to save in the lowest points to achieve the greatest returns. And they do happen more often than you think. A 2018 statement from investment firm Vanguard said there is one "attention grabbing downturn" in the markets every two years since 1987. Sitting on the fence for one of these downturns will mean losing out on any of the greatest price rebounds. In another way, by bailing out of the market you stand to risk more than by waiting things out. That's not to suggest watching the demise is easy, but you can (attempt) to rest easy realizing that there are wealthier days ahead.
3. Your long-term goals can handle it
To the ordinary investor, the stock market has a very limited purpose; typically in the future, to create a pot of money to use at a particular point in time. When you're planning for a major, substantial goal — retirement, college education for your kids, a new house — and it's more than five years from now, your savings are more than likely to recover. That's why most long-term investors are good at purchasing and keeping a portfolio of diversified investments. Take it from Warren Buffett: "Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well."