Here are some tips that can help you build investing confidence in your approach, no matter what the markets are doing.
Emotions always play a role in investing. For some investors, especially newer ones, it can be hard to separate the idea of investing from “losing it all.” If you’re anxious or insecure about your investing plan, you could make heat-of-the-moment decisions during market downturns that might not be best for your long-term goals. That’s why it’s important to acknowledge those nerves early and make sure your emotions are working for you when you invest, not against you. Here are some tips that can help you build confidence in your investing approach, no matter what the markets are doing.
Consider dollar-cost averaging
Say you have a large lump sum of money to invest. Maybe it was an inheritance or a gift. If you’re very risk averse, one of the first thoughts you might have is “what if I invest all this money at once, and the market drops right after?” If that sounds like you, dollar-cost averaging might bring you some peace of mind.
Dollar-cost averaging means buying a fixed dollar amount of a particular investment on a regular schedule, no matter what its share price is at each interval. Since you’re investing the same amount each time, you automatically end up buying more shares when prices are low and fewer shares when prices rise. This can help you avoid that potential buyer’s remorse of investing a lump-sum amount when prices are at their peak. Incremental investing is one way to help you get comfortable with the market’s natural movement, and it can be especially helpful for self-identified worriers.
Make saving automatic
Some investors worry they’re not saving enough to reach their long-term goals—or that they’re not doing enough to keep their financial lives on track. You can take some of that uncertainty out of the equation by setting your savings on autopilot. Put a percentage of each paycheck or your annual salary into your investment accounts. You’ll be taking positive action to stay on track—and that’s a great feeling!
Diversify your investments
Diversifying your portfolio is one way to help control risk. It’s a fancy way to describe putting your eggs in many baskets—or in this case, putting your money into high-, moderate-, and low-risk investments, both domestic and international. Your portfolio will still have the growth potential that comes from higher-risk shares, but you won’t be as vulnerable during market downturns because you’ll ideally also hold safer investments like bonds and cash. The breakdown of shares, bonds, and cash in your portfolio determines how much risk you take on when you invest, and you have the freedom and flexibility to choose a mix that feels right for your life.
Think long term
Successful investing isn’t about reacting to today’s news or to the latest trends bubbling up on social media. It’s about letting your long-term goals guide your financial choices. That’s what inspired you to invest in the first place! You might be tempted to pull your money out of the market during periods of volatility. But if you do that and reinvest when the markets calm down, you could end up farther away from your goal. Why? Because your investments lose the power of compounding. And while a measured, disciplined investing approach isn’t always easy, it can be worth it in the end.
Remember: Strong financial plans are built with market volatility in mind. If you diversify your holdings, invest regularly, and stay focused on your big-picture goals, you can feel confident that you’re doing your part to set your portfolio up for success—and set yourself up for ongoing financial wellness.
DISCOVER MORE: Book your FREE session with our Wealth Advisor here
Reproduced with permission of Vanguard Investments Australia Ltd
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.
© 2022 Vanguard Investments Australia Ltd. All rights reserved.
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.