Every so often a market event comes along and reminds us of the fickle nature of investing. A major episode can send shockwaves across the globe and dent the public’s enthusiasm for investing, particularly those who are relative newcomers.
Here’s a few reasons why a market dip can be a good time to dip your toe into investing!
1. There’s no time like the present
If there is a perfect time to start investing it evades even the sharpest minds working in the industry today. Read every piece of market information you can get your hands on and you’ll still be no wiser than any of the pros when it comes to knowing what’s going to happen tomorrow. What is clear is that due to the power of compound interest, the earlier you start investing, the better.
2. It’s all about the long game
Markets are illogical, crazy, highly strung, emotional beasts in the short term and living with these peaks and troughs is part of being an investor. You have two choices: you can try to time them – a very high-risk strategy that surprisingly few pros* get right each year – or you can ride them out. The effects of market events can typically be smoothed out by holding onto your investments for the long-term.
*Two thirds (66%) of large cap S&P 500 active managers failed to hit benchmarks in 2016. 90% have failed to hit benchmarks over the past 15 years. Source: CNBC 04/12/2017
3. You can grab a bargain
‘Buy low, sell high’ might seem like a no-brainer, but it’s amazing how many professional investors fail to follow this simple mantra. Market downturns, while not necessarily good news for investors, are an opportunity to buy at bargain prices if you’re saving regularly into your investment pot. Over the longer term there’s typically a good chance the share price will recover.
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4. Your savings may not be growing as much as you’d like
Practically every finance expert will agree that you should have a rainy day fund equivalent to around 3 months’ expenses that’s easily accessible in case you need it. For any leftover savings, you may want to consider where you’ll have the best chance of getting inflation-beating returns, if you have future plans for the money.
5. What goes down, must come up
This mantra works both ways when it comes to the markets. While individual company stocks might dip and never recover, the market as a whole usually bounces back from a downturn over the longer term. Even so, you shouldn’t try to time the market, it’s better to start investing as soon as you can and choose funds that track the market for steady long-term growth. That way, you can avoid the daily dramas and still enjoy potential healthy annual returns.
Past performance is not an indicator of future growth. With investing, your capital is at risk and you might get back less than you put in.
The comments and opinions expressed in this article are the author's own and should not be taken as financial advice from Wealthify.