What’s Going On Here?With volatility affecting stock markets around the world again last week, investors with two very different ideologies came to the fore. What Does This Mean?Despite their recent rollercoaster ride, US and European stocks will actually start this week close to where they were about a week ago. Still, with all the chopping and changing that’s been happening, investors might be forgiven for having sold off their holdings to lock in profits or avoid further losses.
But some investors seem to have been more relaxed: US stocks, after all, have been on an upward trajectory – without falling more than 20% – since March 2009. Those investors might see the current hiccup as reminiscent of the sell-off in late 2018, and therefore an attractive time to buy into (what they're hoping is) another blip in the longest-ever “bull market”. Why Should I Care?For you personally: Law of averages.
Stock values fluctuate, but stock markets do tend to rise in the long term. One way far-sighted investors try to take advantage – without gambling on precisely when to buy – is “dollar-cost averaging”. That’s when you invest a set amount every week or month, effectively paying the average price for a stock over time rather than its price on any one day. And since you’re investing the same amount each month, you’ll just get more bang for your buck when prices go down.
The bigger picture: The cost of missing out.
It’s tricky to convince some investors to buy when markets are still falling, but the cost of leaving it too long might spur them into action. If they’d invested $10,000 in 1999, it would’ve grown to almost $30,000 by the end of 2018 (a period that, remember, included the global financial crisis). But if they’d cashed out and missed the ten best days of stock market performance in that period, their pot would’ve only grown to $15,000. | 