Though the current bear market is taking its toll everyone, from institutions to individual investors, an article in The New York Times posits that right now is actually a good moment for new, young, investors to put money into the market. That’s because investing now, when stock prices are down, but have a long stretch ahead of you to rebound, gives you a good chance to reap substantial rewards. And staying in the market, even during periods of turmoil, you’ll accrue the benefits of compound returns as well.
If you put money into the market whether or not stocks and bonds rise or fall—dollar-cost averaging—your costs will decrease during a bear market, boosting your long-term returns. For example, if you’d invested in the Vanguard 500 index fund in 1980, and stuck with it through the 7 bear markets over the next 40 years, resisting the temptation to sell, your original investment would have ballooned 6,600%, the article details.
It’s reasonable to assume that, if history is any guide, the stock market will eventually go back up. Stocks’ underlying value is based on a company’s profits; even if that value is declining right now, it will likely grow again in the future. While highly skilled investors could probably select individual winning stocks, ordinary investors will do better to invest in an fund that tracks the S&P 500 or another major index, the article advises.
If you are one of the two-thirds of U.S. employees who have access to a workplace retirement plan, it’s likely a 401(k) or similar as traditional pension plans are becoming more and more rare. But 401(k) and similar plans don’t pay out unless you put money in, promoting workers to become investors. Social Security, on the other hand, doesn’t require any investment. However, future availability of Social Security funds relies on Congress, so if you have access to an employee contribution plan, take advantage of it by putting in the amount that your company matches, at minimum. If your workplace retirement account is a target-date fund, as many are, set a probable year for retirement, and leave the fund alone. It will likely allocate mainly to stocks at first, rebalancing periodically as you get closer to retirement. Target-date funds do best inside of a tax-sheltered account like an I.R.A., the article notes.
While how much money you should be socking away is a personal decision, try to put aside as much money as you can manage without stretching yourself too thin; 10% of each paycheck is a good goal if you are in your 20s. And if you want the maximum amount of Social Security benefits, plan to work until at least age 70.