With the Dow Jones Industrial Average DJIA, -4.15% and the S&P 500 making dramatic drops in recent days, now may not look like the most appealing moment for first-time investors to enter the stock market, but that’s exactly what they should be doing, experts say.
People who have never bought stocks before should think about starting now, said Andrea Coombes, investment and retirement expert at personal-finance site NerdWallet said, especially millennials and young people starting out in their careers and have decades before retirement. “Any time the stock market takes a dip, it is like a store-wide sale,” she said. “It’s a good time to think about buying in.”
On Reddit, one millennial asked: “What is the best time to take advantage of the stock market downturn? “I’ve never had an investments account,” the user wrote. “I had started to dip my toes in the water a couple times but it always seemed that I had missed the boat. The market was soaring and it wasn’t a good time to buy. Well, I think now is as good a time as any to get into the market, but I need some advice on the most appropriate type of account and strategy to pursuit given my financial goals.”
Millennials are less likely than any other generation to invest, and more likely to put their money in real estate, cash, and gold before the stock market, according to a survey from personal-finance site Bankrate. Coombes attributes this aversion to investing to millennials’ experiences watching their parents suffer through the financial crisis of 2008.
Taking that as a lesson to stay out of the markets is a mistake, however. “Millennials are better positioned than others to let time work for them, because they can leave their money sitting in the market through ups and downs,” she said. “The market will rise and fall. If you can ride out this dip and let your money sit, it will grow again.” (It took six years for the market to recover from the Great Recession.)
There are some caveats: Do not invest if you need the money in the next couple of years, if you finally have saved enough cash for a down payment on a home, she said. And there may still be more volatility ahead, so don’t invest now in hopes of short-term profits from the ups and downs of the market, said New Jersey financial planner David J. Haas. Nor should you go it alone by speculating on individual stocks.
“Instead, you need to develop an asset allocation that fits your goal, your time frame, and your risk tolerance,” Haas said. “You need to periodically rebalance your portfolio. Then once a year, re-examine your goal, your time frame, and risk tolerance to make sure nothing has changed. Your investing decisions are about you, and not the market.”
A financial planner can help new investors evaluate their goals and find the right, diversified portfolio for their particular situation. Today, apps like Acorns and Betterment automate investing and allow people with little experience to enter the market. The best move for people who haven’t invested yet is to get going soon, said Scott Frank, a financial planner who works with Generation X investors, and enjoy the benefits of compound interest over time.
“The best time to start saving for a long-term goal in the markets is today, always.” he said. “Time is your friend when it comes to saving.”
And the Reddit first-time investor? There was one salient piece of advice: “If you invest a little bit in the markets over the years, it won’t matter whether you invested during a bear or bull market. The law of averages will end up cancelling out all those momentary spikes and blips. Another way to think about it, the market is down a little bit right now. In 10 to 20 years when you still have this money in the stock market, it likely won’t matter whether you invested when the Dow was at 24,000 or 25,000.”