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My Best Advice About the Markets Right Now

My Best Advice About the Markets Right Now

So when do we get that quiet, boring August?

So much going on. So much. And so far, August has been the most volatile month of the year in the equity markets. Last week, there were a few stomach lurchers, including a 767-point drop in the Dow Jones Industrial Average last Monday. Interestingly, despite the bumpiness, it finished the week pretty close to where it started. But so far this week, the markets are still up and down.

Three things to keep in mind:

  • In investing, there is no return without risk. It just doesn’t exist. Put another way, the equity market doesn’t go straight up. Never has, even as it was earning an average of 9.5% annual returns since the 1920s.
  • If you had invested in the equity markets on any day — any single day — since 1926 and kept your money in for 15 years, you would have had a positive return 99% of the time, according to a study by Oppenheimer Funds. (Wow.)
  • Nobody can consistently “time” the market, buying at market lows and selling at market highs. I don’t care how confident the pundits sound on CNBC: Even the greatest investor of all time, Warren Buffett, doesn’t believe in timing the market (which may be one of the reasons he’s the greatest of all time). In fact, the primary reason that individual investors haven’t achieved even close to the returns* of the stock and bond markets over the past 20 years is because they tended to panic when the market panicked, and get overconfident when the market was going up, thus making the wrong moves at the wrong times.

So what should you do? The answer, in most cases, is “nothing at all.” Market up-and-downs are a part of investing. That means we plan for them when we build your investment portfolio.

But if you’re the type for whom “nothing at all” makes you itch, here are two concrete actions you can take.

First: Check to see that every portfolio you’re invested in is well-diversified.

That means not putting all your financial eggs in one basket by including a mix of investments that move differently in the markets. Pretty important.

Second: Set up a recurring deposit, if you haven’t yet.

Sound counterintuitive? Investing a consistent dollar amount regularly (say, monthly) — no matter what’s going on in the market — is called dollar-cost averaging. It’s a way to help yourself get rid of the risky guesswork that comes with the impulse to buy or sell.

By investing regularly, you’ll make investing a habit, and give yourself the opportunity to grow your net worth steadily over time. And trust me, it’s better to have a smart plan on autopilot than a heart attack every time the markets move. Because one thing I know for sure: They will.

Read the original article here.


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