Question: Stacy in Mariemont: I’m 35. What’s the best way to take advantage of the stock market drop?
Answer: We love that you’re thinking long-term! One of the best approaches is called ‘dollar-cost averaging.’ It basically means that you invest the same amount of money every single month, regardless of how the market is performing. So, while the market might have some bad days, months, or even years, you’re also benefiting when it has really good days, months, or years. For example, $100 a month buys fewer shares when prices are high and more shares when prices are low… and you’ll be surprised after a year or longer that the average price you paid was actually on the lower end of the spectrum! This method allows you to be a consistent saver while avoiding the temptation to ‘time’ the market – you’re investing your money no matter what. In a sense, it’s kind of freeing since you’re taking all the emotion out of investing.
If you have a 401(k), you’re likely automatically using this approach already. But it can also be used for money you want to invest outside of an employer-sponsored plan. Either make room in your budget every month for the same amount you want to invest, or, if you have a lump sum of cash you want to put in the market, divide it up evenly so you’re investing the same amount monthly.