For most everyday investors, however, such fluctuations shouldn’t have a huge impact on your investing strategy for the year. As long as you’re investing for the long term (goals at least five years out), the day-to-day movement of the markets themselves shouldn’t have lasting consequences to your portfolio (or your fortitude to stick with it.).
Here’s how to approach your investments in 2019:
Keep Calm and Carry On
After more than 10 years of stocks gaining ground, they’re overdue for a correction, or even a sustained downturn, but it’s impossible to say when that will happen or—if it’s already started—how long it will last. Even if the market does transition into a bear market (defined as down at least 20%), there’s no reason to panic.
Many investing mistakes occur when we start to let emotions influence our money decisions. Instead, set up automatic deposits into your investment accounts, so that you’re able to contribute without having to regularly look at what the market is doing. Continuing to invest on a recurring basis, such as every time you get a paycheck, is the best way to ensure that you’ll be able to purchase stocks at the very bottom of the market, when they’re cheapest. “When markets are down, that’s when you want to be buying,” says Dan Routh, a wealth adviser at Exencial Wealth Advisors.
Pick one stock to buy and watch what happens to it over the coming year. Read the news on the company. Chart the ups and the downs.
Invest Even More
The key to making successful investments over the long term is to invest as much as you can over the longest period of time. In fact, one thing many of us fail to consider is that the amount we’re able to stash away is a factor completely within our control, unlike the short-term movements of the markets. That’s why it’s always smart to aim to boost your investments by increasing your contribution whether you’re doing it over time, when you get a raise, or allocating a portion of any windfalls like a tax return on bonus to your investments.
Focus on Your 401(k)
For many investors, the best place to get started is in your company retirement plan, especially if your employer offers a match on some of the funds that you contribute. You’ll want to kick in at least enough to get that employer match—that’s free money, after all. But don’t stop there. Aim to save at least 15% of your income. You won’t have to pay taxes on money that you put into a 401(k) or 403(b) now (up to $19,000 in 2019), and the money will grow tax-free—and benefit from compound interest—until you take it out in retirement. “Saving for retirement is an obligation now,” says Rob Williams, vice president of financial planning at Charles Schwab. “It isn’t an option. It should be part of your budget, and the sooner you can start the better.”
Make Sure You’re Diversified
One way to protect against the ups and downs in the market is to make sure that you have money in more than one type of investment. Your portfolio should include bonds as well as stocks, and a mix of stocks in big and small companies and those that are U.S.-based, as well as international. The easiest way to get a mix of investments is via mutual funds, which let you own a small amount of many stocks and/or bonds simultaneously. You can work with a financial planner to get the right asset allocation for you, based on your age and risk tolerance, or use an online calculator (like this one from Vanguard) to get a ballpark idea. If you’re more of a hands-off investor, consider a target-date fund, which will automatically allocate your investments for you and adjust according to your time horizon. “Try to keep it uncomplicated,” says Jean Mote, a Certified Financial Planner with Arnold & Mote Wealth Management. “The easier it is, the more likely you’ll stick with it.”
Invest in Something Fun
Finally, if you find you have some extra cash to invest—and you’re looking to up your investing confidence simultaneously? Pick one stock to buy and watch what happens to it over the coming year. Read the news on the company. Chart the ups and the downs.
“Sometimes it takes having a real stake at the table to improve our confidence as investors,” says HerMoney CEO Jean Chatzky. In 2019, make an effort to just get in there—you’ll see it’s not intimidating, and when the market moves, you’ll have your one stock to watch. Who knows, it may motivate you to put more away in your other accounts.
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