Spoiler: Stocks aren’t doing too hot right now. They’re currently in bear market territory, which means indexes are down 20% from their most recent highs. And there’s even been talk of a recession. Which might make it sound like it’s not a great time to start investing. But that’s not necessarily true, especially if you’re working toward a long-term goal like retirement. Some even see it as though the markets are on sale and are ‘buying the dip.’
So…should I start investing right now?
It depends. Here are a few signs that you’re ready to start investing:
You have an emergency fund set aside in a savings account.
You’re not paying off high-interest debt (think: credit card debt).
You’ve got money to spare after paying all your bills and living expenses.
Ok, I’m ready. Where should I start?
Experts often recommend starting by enrolling in your employer’s 401(k) program. Which can come with perks (hi, tax savings and matches). If you don’t have a 401(k) through your employer, a 403(b) is a common alternative for those working in nonprofits and schools. And they function similarly. For those without access to these options, a Roth IRA or SEP IRA (hi, self-employed folks) are other investment accounts you could consider.
Wait. Why should I start by investing for retirement?
Two reasons. First, you’ll need that money later on. Because you’re going to want to stop working eventually. And, women need to save more for retirement than men. Second, odds are that money is going to be invested for a while. And when money is invested for the long term, there’s a better chance that it will overcome the market’s temporary ups and downs and grow over time.
And how much money should I invest?
You don’t need to be rich to invest. Some platforms will let you get started with as little as a few dollars. But that said, you shouldn’t invest more money than you can afford. You’ll want to fit it into your budget and make it a priority each month. But don’t overextend yourself to invest.
What all this talk about ‘buying the dip?’
Buying the dip is all about buying stocks and investments when they’re low in price. Read: a bear market. But that doesn’t mean that it’s always a good idea. Like if you’re not ready to invest in the first place (see: above). Or, if you’re only planning on keeping shares for a short time (hint: less than 10 years).
If you’re ready to invest for a long-term goal (like for retirement), buying the dip might be a trend that’s not all that bad. Because you could get some of those investments you’re planning on keeping around for a while at a discount. And when prices are low, your money could go further and buy you more shares, which could be worth more in the long run if the market recovers.
That’s great and all, but will prices ever go back up?
That’s a great question. And the answer is, probably. Markets are cyclical. And booms generally follow busts. See: the S&P 500 rebounding 23% in 2009 after the Great Recession in 2008, and markets bouncing back after the (brief) recession in 2020 ending the year up 16%. So, it’s likely that stocks bought now will probably go back up. And, of course, the chances are better when you give investments years to recover.
Isn’t investing risky?
It’s worth noting that, despite the general upward trend of the markets over the past few decades, no one can predict the future. All investments involve risk, and you could potentially lose money. While diversifying your portfolio and investing for the long term can help you minimize that risk, it won’t go away entirely.
If you’re ready to invest, you don’t have to wait for stock prices to go back on the rise. Buying the dip could help out future you, but only if you plan on staying invested for the long haul.
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