Feeling the recent market downturn quickly define a new way of life for us on so many levels can be daunting. It can be hard to imagine a silver lining in this chaos. But Millennials are no strangers to facing challenges – particularly economic ones.
Today, we are uniquely positioned to invest in ourselves and an economy that has the potential to recover and grow to new heights. We have a choice: rise to the occasion and make our hard-earned money work for us or sit on the sidelines, potentially delaying our own long-term financial success.
In the wake of the COVID-19 down market, we are in unchartered territory. But if you work in an industry that is less disrupted by the quarantine and you have money to invest for the long-term, then we believe that now is a particularly advantageous time to buy.
Buying Low
In recent weeks, the market has dropped 30 percent. To non-investors, that might sound like the worst time to enter the stock market. But to someone ambitious about accumulating wealth, what it really means is that stocks are selling at a discount.
This current volatility can help us invest in the stock market while it’s more accessible, so we can build a portfolio that can grow over the long run (which is the perspective you should have when approaching stock investments).
Lately, I am often asked, “Will the market drop lower? Should I buy today, or should I wait a few more days to see if it drops more?” We know that volatility could continue for some time, but since none of us own a crystal ball, I suggest relying on “dollar cost averaging” to answer these questions. It means regularly investing a fixed dollar amount into the market at equal points in time.
You can set up an automatic contribution plan that transfers $200/$500/$1,000 – or however much you can afford after your bills are paid each month – into an investment account. You set up the contribution so that it is automatic and recurring on the same day every month. Over the long run, you will buy in at different price points, but you will not run the risk of trying to time the market. If you have a 401(k) through your employer, then it works this way as well as you spread your contributions evenly across 12 months of the year.
Dollar-cost averaging is one method we can take to consistently build a portfolio over time. And while it may seem counterintuitive to put the money you have left each month into a bear market, it is important to focus on the end game: long-term financial success.
Putting Our Money to Work for Us
We don’t know how long this bear market – or, put another way, this window of opportunity – will last; but we know the stock market has a 200-year history of recovering and going on to reach new heights.
Simply put: there may never be a better time than now to enter the market or increase your monthly contributions. But before we go any further, let’s cover a few basics every new investor should consider:
1. Time horizon. This is the fixed time period that you expect to hold an investment. How soon do you anticipate needing to use the money you invest? When you plan to use your earnings matters when you make the decision to enter the stock market.
2. Risk tolerance. Let’s face it: recent events won’t be the last time we see the stock market fall. How much you’re able to withstand the market’s volatility psychologically is important to know in advance of choosing to invest in a stock-based-portfolio.
3. Investment goals. Some of us are chasing the FIRE (Financial Independence, Retire Early) life, while others are aiming for the CEO seat in a Fortune 500 company – two very different scenarios with completely different investing goals. An accumulation plan for one of us will not be the same accumulation plan for another.
Now’s the time to take the first step toward long term financial success. Visit MyAccumulationPlan.com and click the Get Started button. From there, you’ll be guided through a series of questions that will help you explore your time horizon, risk tolerance and investment goals to appropriately calibrate how you should approach a stock-based investment portfolio (of which MAP is an example).
When you’re ready to invest in the stock market by opening and funding a MAP account, a Wealth Accumulation Advisor will personally review your profile to make sure the asset allocations are in line with what you’re trying to achieve.
Building financial security is a journey. MAP makes it easy for you to start.