This story is part of Recession Help DeskCNET’s coverage of how to make smart money moves in an uncertain economy.
If there’s one thing I’ve learned over the years of reporting, it’s this: The stock market it’s with humor.
In 2006, I began a new role as a financial correspondent reporting from the trading floor of the New York Stock Exchange. My job was to understand why the market was up or down each day. I would start each morning by interviewing older, white male brokers who were responsible for buying and selling stocks on behalf of large institutional investors. (Also true: I was asked to wear closed-toe shoes and a blazer. The dress code back then was strict and a little ridiculous.)
I learned if tech stocks fell right after the market opened, it may have been due to lower-than-expected earnings the night before from an industry giant like Apple. Any hint of turbulence in the tech sector caused panicked brokers to dump the stock at the opening bell.
The market does not actually reflect reality. It measures the moods and attitudes of people like the brokers I interviewed.
“Today’s stock prices are not because of how businesses are performing today,” Matt Frankel, a certified financial planner and contributing analyst for The Motley Fool, said in an email. “They are based on future expectations.”
Here’s the problem: Current prices serve as a gauge of investor confidence, but stock market predictions are, at best, educated guesses. And to further complicate matters, “the markets aren’t always correct,” according to Liz Young, head of investment strategy at SoFi.
Reporting from the floor of the NYSE during the May 2010 “flash crash,” when major stock indexes crashed and then partially recovered within an hour.
Screenshot/CNET
Sound discouraging? I hear you, but it’s worth the investment. That is why.
While the stock market represents an elite class of investors (the richest 10% of Americans own 89% of stocks), it has proven over time to be a reliable way to grow your money for anyone with the tools and information to proven. And technology has made it cheaper and easier to access. Now, a whole new generation has the chance to start investing and building wealth. If you can afford your basic needs and have some emergency savings set aside, there’s no better time than now to invest — even if it’s just $20 a month.
Of course, the stock market feels particularly risky right now, and it’s natural to want to save your money when the economy is unstable. If you’re on the fence about investing because you are worried about a recession, or you just don’t feel comfortable taking financial risks right now, you’re not alone. Over 40% of Americans surveyed earlier this spring said the bear market crash made them too scared to invest.
But waiting to invest is an even bigger risk. Here’s what I know for sure about how to overcome worry and invest for success.
The ‘right time’ to invest is now
Yes, the market is dangerous. Yes, there will be more crashes. But there is a high probability that the market will bounce back, just as it bounced back (and then some) a few years after the 2007-09 global financial crisis.
“Things will get better again. They always do,” as my friend David Bach, author of the New York Times bestseller The Automatic Millionaire, told me on my So Money podcast.
Of course, it’s best to buy at a low price so you can cash in on as much appreciation, or compound interest, as possible. But since it’s so hard to predict where prices will go, the “right time” to strike is often something we only understand in hindsight. Waiting to invest until the time is right, when you think the stock has “bottomed out,” can set you up for more failure than success.
Your time IN the market is more important than time the market. Staying low until stocks recover just means you’ll pay more. Instead, invest steadily and consistently and let compound interest build. You will shop the lows and the highs, but in the end, over the years, you will come out ahead. “If you’re in your 30s, or 40s, or 50s, and you’re not going to retire in the next year or two, guess what? Everything’s for sale,” Bach said.
For example, if your parents had invested $1,000 in 1960, it would be worth approximately $400,000 today. This is after a presidential assassination, multiple wars, a global pandemic and many recessions, including the Great Recession. If the past is an indicator of the future, it has been proven that markets will eventually recover from a downturn and that they have greater periods of upswings than downswings.
Read more: Investing for beginners
Diversification is your best tool against market volatility and downturns. Investors who are more cautious can try US bonds, which are considered “safe haven” investments because they are backed by the Treasury and offer a predictable return.
Right now, with inflation at 8.5%, Americans are flocking to Series I Savings Bonds, a government-issued investment that is protected against inflation. I bonds have a fixed rate and an inflation rate that adjusts every six months. Right now, I-bonds will yield a 9.62% annual interest rate, which means they’ll get you higher guaranteed returns than any other federally backed bank account.
Technology makes investing cheaper and more accessible
Investing can be unnecessarily complicated and exclusionary, and the financial industry as a whole could do a lot more to break down barriers to entry. Guests on my So Money podcast, especially women, people of color, and young people, have shared how they wish they had learned about investing sooner.
My advice? Rely on technology, as well as the proliferation of social media and podcasts, to gain better access and education. At CNET, we’re big fans of robo-advisors like Wealthfront and Betterment that offer low-cost portfolio management. There is no need to wait until you have $1 million in the bank, which some professional investment advisors require before working with clients. You can start with just a little money.
And if you’re a fan of TikTok, Instagram, or YouTube, there are some reputable experts out there offering free education. A word of caution: Be sure to check their background and make sure whoever you’re following isn’t a salesperson masquerading as an investment educator!
Read more: Investing doesn’t have to be intimidating. The Pros and Cons of Robo-Advisors
Once you invest, embrace automation so you never deviate. Automating our retirement savings or contributions is a smart move that, frankly, saves us from ourselves. With money in our hands, it’s much easier to spend than to save, but technology can automatically move that money into an account. We are more likely to save for our future if we are already enrolled in a company retirement plan, as opposed to choosing to opt in with every paycheck. Start your contribution at the maximum employer matching rate and try to increase your contribution to 10% or even 15%. This can earn you thousands of dollars more every year.
Pro tip: If you’re saving for retirement, see if your plan provider will automatically increase your savings rate each year (60% of employers offer this feature, according to the American Benefits Council).
For all other types of long-term investments such as a brokerage account or Roth IRAcreate a calendar reminder at the beginning of the year or on your birthday to increase your contributions.
Read more: Need to save for retirement? This is the easiest way
You may also be able to set your portfolio to automatically rebalance so that it automatically adjusts and picks up more stocks after a period of market decline, which can give you the right balance of stocks and bonds in your portfolio. your
Automatic rebalancing is a feature many banks and brokerages offer to ensure your portfolio allocation doesn’t fall flat, says David Sekera, chief U.S. market strategist for MorningStar. For example, let’s say you set up your portfolio to have an even mix of stocks and bonds. A bear market like the one we’re in right now can underweight stocks and go heavy on bonds. But an automatic rebalancing can fix that by buying more shares when prices are low again, according to Sekera.
I’ve seen firsthand how market volatility is creating a lot of uncertainty, and I know why it’s hard to feel confident about investing. But history shows that standing on the sidelines as an investor can be more dangerous than participating in the market and riding the highs and lows.
Entering the market sooner rather than later can be one of the smartest decisions on the road to building personal wealth and financial security. Along the way, be aware of your risk tolerance, stay diversified and rely on automation to help you stay on course.
