Volatile markets offer numerous investment opportunities; however, proceed with caution.
The current market is volatile due to record-high inflation, global upheaval, and the first interest rate increases in years. Existing investors are making strategic modifications to their portfolios, while prospective investors are hesitant about whether they want to participate. Is today the perfect time to get started for those lucky enough to have disposable funds?
Here are three reasons to take your time.
1. It’s better to spend time in the market than to try to time it.
Generally, when one begins investing has less of an impact than how long one invests. This serves as a sobering reminder that neither bull market cycles nor bear market cycles can be predicted and that a market rebound can occur even in dire economic circumstances.
Timing the market, or waiting for equities to reach a new low or fall from previous highs in order to nab a deal, is dangerous. Short-term market behaviour is unpredictable, with current trends seemingly reversing on a dime. Waiting for the “ideal” time to invest may result in missing out on possible rewards.
In other words, because markets are down, this is a fantastic investment time for many traders. However, there may be exceptions for those who need their money quickly, as a short-term collapse can wipe out a portfolio overnight. If you are a first-time investor searching for a long-term “buy and hold” approach, now is one of the finest times to enter the markets and start investing.
2. Downturns provide more room for growth.
Many investors consider short-term volatility to be a risk to their portfolio. This is true in the short term: volatility frequently reduces the total worth of one’s investments.
However, one of the essential methods for the stock market to generate returns is for investors to buy low and sell high. And what better strategy to profit from significant price discrepancies than to buy in when the market is falling? Forget about market timing; an excellent long-term growth approach is to buy when the market is down.
Consider market volatility as bargain hunting. Purchasing high-quality investments when “on-sale” allows investors to boost their profit margins when the market rebounds. The trick is to separate the rubbish from the diamonds.
The market will eventually perform.
There is no certainty that any single security will generate a profit. However, given enough time and significant economic activity, the stock market has always performed well.
However, the duration between a crash and recovery varies greatly, and it is impossible to predict when this will occur. As a result, determining how long investors must wait to earn gains is practically difficult.
For example, it took 12 years for most stocks to rebound after the Great Depression. During the COVID-19 epidemic, however, many stocks recovered in under four months. This is a sobering reminder that it is impossible to foresee bull or bear market cycles and that even in dire economic circumstances, the market can return.
Begin cautiously to form healthy habits and “feel out” the market.
Is this a good moment to invest? The answer might be yes for individuals not close to retirement. Before determining whether and where to invest, every investor should assess their risk tolerance and time horizon. Starting gently helps ease new investors into the market while minimizing risk.
Beginners can also begin with a dollar-cost averaging strategy, which includes investing little sums at regular periods to level out the market’s ups and downs. Dollar-cost averaging isn’t as exciting as day trading, but it makes it less tempting to try to time the market and can lead to more significant gains for investors.
As frightening as the current market may appear, effective investing is concerned with the future rather than the now. Be smart, stay focused, and only take risks you can afford to lose over the long term.
