How much money you’re able to invest each year is one of the biggest factors in achieving your financial goals. And the longer you’re invested, the more time your money has to compound and grow.
Inflation is up and markets are down. What does this mean for you?
Entering the world of investing can be intimidating, even during the best of times. After all, it’s normal to have some hesitation when you’re doing something new. But what about when the markets are choppy?
The truth is, ups and downs in the markets are normal parts of the investment landscape. But starting out during a rocky market is not a bad place to be.
When you’re still in the accumulation phase of your financial life, you’re trying to grow your portfolio—by holding more growth-oriented investments, for example. At this stage, you’re more likely to have time to take on more risk because you won’t be accessing your money for many years. In short, time is on your side.
A volatile market can be seen as a formidable hurdle. But down markets can be favourable for investors. As the mantra goes, “buy low, sell high.”
If you can start saving for your future when the share market is down, you give yourself a better chance of meeting your goals. That’s because you’ll be able to buy more shares at a lower price, which can give you more value over the long term.
The longer you wait to start investing, the more money you’ll likely need to invest over time to accumulate the same amount. You could also end up purchasing shares when they’re more expensive and miss out on market appreciation.
This also could be a great time to dollar-cost average. “Dollar-cost averaging” is the practice of purchasing a fixed dollar amount of a particular investment on a regular basis, regardless of the share price. You’ll automatically buy more shares when prices are low and fewer shares when prices are high. This helps you avoid the risk of investing a lump-sum amount when prices are at their peak. With each contribution, your portfolio has the potential to grow—increasing your nest egg.
Tips for getting started on your investment journey
The Dos
1. Start now, start small
Create a budget for yourself and commit to investing a comfortable amount on a regular basis. For example, you could:
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Start contributing a little each month into an account dedicated to investing suitable for your situation.
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Set up a monthly investment into a high-yield account where you may be able to earn more interest than a standard savings account.
2. Maintain voluntary contributions to super
If your company provides a matching contribution, contribute up to the full match. The company’s match is essentially “free money” toward your future that can help you reach your goals sooner—so why miss out?
3. Start an emergency fund
An emergency fund should cover about 3 to 6 months of your living expenses. Keep in mind:
Your emergency fund should be kept in a liquid and stable place like a high-yield savings account.
The Don’ts
1. Don’t spend your money on trendy investments.
While it may be alluring (who wouldn’t want to get rich quick?), jumping on the bandwagon for an individual stock that’s momentarily in the spotlight is high-risk.
2. Don’t stop contributing to your investment when markets are volatile.
The sooner money is invested, the more time it has to grow. Stopping contributions altogether will slow your progress. You work hard for your money; let it work hard for you.
3. Don’t focus on the value of your portfolio on a single day.
On any given day, the market can go up or down. Instead of stressing over your balance, ask yourself, “When will I need this money?” If the money is for a longer-term goal—say 10, 20, or even 30 years—the value of your portfolio today doesn’t matter.
These are general tips and every investor should consider their own personal situation when making financial decisions.
If you’d like to start your investment journey, call us on (03) 9769 9500.
Source: Vanguard
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.
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