Manyone considering investing in stocks during the bear market. Whether you didn’t have the funds before or just can’t resist the relatively low prices right now, investing in stocks can be a good hedge against inflation.
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“The definition of a bear market is when a market experiences prolonged price declines, typically falling 20% below their recent highs,” John L. Savarino, Representative Investment Advisor at Rooted Wealth Advisors, explained. “It’s a good time to start investing because you can see it from the perspective that stocks are discounted. The market is cyclical, so if you start investing when the market is at record highs, the chances that the market will eventually go down are very high.
If you can handle the stress of watching your balances fall – on paper – until the market recovers, bear market investing can ultimately pay off. when the market goes bullish again. And it will happen. “Patience, consistency and discipline are needed when it comes to investing,” Savarino said.
What else should novice investors know before buying stocks for the first time?
Read, learn and understand
“Investing doesn’t have to be complicated, but you do need to take the time to learn,” said Jay Zigmont, Ph.D, CHP and Founder of Wealth without children. He recommended reading as much as possible on the subject, including classics like “The Common Sense Little Book of Investing,” “The Simple Path to Wealth,” and “A Random Walk Down Wall Street.”
Zigmont also echoed the tips from warren buffett to never invest in a business that you cannot understand. He said: “Follow the general rule of only investing in things you understand. Understanding an investment involves knowing what you’re investing in, how it impacts your financial plan, and where to hold it.
Receive expert help
Don’t be afraid to ask for help navigating the investment landscape, experts agree. Zigmont suggested seeking a fiduciary-certified financial planner just for advice and fees.
Catherine Valega, CFP, CAIA and wealth consultant at Green Bee Noticesaid: “The fee you pay for an advisor to help you with your overall plan is more than recouped based on how well we can help you invest for growth, protect your assets and reduce taxes. “
When choosing a financial adviser, look for one who is prepared to help you grow your wealth over the long term, no matter how small you start, advised Andrew Gold, financial adviser and investment strategist at Prestige Wealth Management. “If they don’t want to work with you now, you probably won’t want to work with them later when you have the extra money,” he said.
Know and accept your risk tolerance
Before you put a dime in the stock market, you’ll want to understand your own risk tolerance.
Heather Winston, CFP and Director of Financial Planning and Advisory at Main financial, explained: “Risk tolerance is the amount of risk one is willing to take, and it will remain reasonably static throughout your lifetime. That said, risk tolerance is only one part of investing – it’s also important to apply that tolerance to your timeline to achieve your goals. As a general rule, the more time you have, the more risk you can take on, as time can help smooth out market fluctuations. Conversely, if your time horizon is short, risk reduction can allow you to preserve what you have amassed.
She noted that it’s normal to feel the pain of losses more significantly than the joy of gains. “It can cloud our decision-making,” she said. “One of the most effective risk management strategies is to simply stick to your plan. You give yourself time to get out and recover from periods of volatility and bear market cycles.”
Use dollar cost averaging to minimize risk
In a bear market, it might be tempting to try to find the bottom of your favorite stocks and buy at this low point. But you never know a stock’s low point until it starts climbing again. Instead, experts suggest using dollar cost averaging to reduce short-term volatility risks.
Gold recommended starting with exchange-traded funds (ETFs), which are collections of similar actions “to be able to penetrate the market in a wide range of companies without committing to the success of a single company.”
Focus on building a diversified portfolio
Savarino echoed Gold’s sentiments about starting with broad market exposure. “Index funds that track the broader stock market are a really good place to start,” he said. “They’re usually very inexpensive and just follow the performance of the stock market instead of taking on the risk of one company at a time.”
Like your the portfolio is growing, you can feel comfortable investing in great companies you love. “But low-cost index funds are the best place to start, in my opinion,” Savarino said.
Make sure your other finances are in order
It is important to remember that the stock market is a long game. “A beginning investor should buy stocks for long-term growth and accumulation,” Savarino said. This means that before you start investing, you need to make sure you have adequate emergency savings in an easily accessible account.
Experts have traditionally recommended having at least six months of salary set aside, but Valega said it recently upped that recommendation to 12 to 24 months of saved expenses, based on the possibility of a weak job market. in a close future.
The money you invest, Winston said, “should be the money you have left over after creating an emergency fund for unexpected expenses and reducing or eliminating unmanageable debt.”
Choose a platform
When you’re ready to start, you’ll need to choose a platform. Savarino pointed out that most platforms today have no fees to open an account, buy, sell or trade assets. “I think the most important thing a newbie investor should be aware of is the resources offered by the platform, preferably at no cost,” he said.
He noted that big platforms like TD Ameritrade offer a wealth of training resources, materials, and personalized, one-on-one help. “Small platforms may not offer that,” he said.
Some newbie investors turn to Robinhood because of the ability to buy fractions or a small percentage of an expensive stock. However, Gold warned, “I would walk away from Robinhood because of the lack of transparency. Also, “in times of volatility they sometimes close, which is not good,” he added.
Make investing automatic
Gold said a bear market is a good time to start investing since most stocks are “20% to 30% below their highs.” But first, you have to get into the habit of putting that money aside for investments.
“Focusing on behaviors rather than outcomes will more often lead to success,” he said. “Saving and investing are important when it comes to getting a head start on your financial future.”
Whether you’re just starting to build your portfolio or just want to save for a rainy day, make it automatic, Gold recommended. “Everyone has a transaction size that ranges from a simple swipe of your card to something you’ll want to consider more carefully. That number could be $50, $100, or even $500. Decide what that number is and set up your bank account to have a quarter of that come out each week when you get paid,” he said.
If you get paid biweekly, you’ll want to withdraw half the amount with each paycheck. “Don’t worry about this money being taken out of your account. If you manage to conquer the first two months of savings, you will have an easy transition to becoming a informed saver and investor of the future“, said Gold.
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Expert investment advice: where to start when buying stocks for the first time
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