In January 2022, the stock market experienced one of its worst months in years. The S&P 500 -- an index that tracks the largest 500 U.S. companies -- declined more than 5%, making it its worst month since the COVID-19 pandemic began in March 2020. The Nasdaq Composite -- an index that includes all stocks listed on the Nasdaq stock exchange -- saw roughly a 9% decline.
The negative market activity has left some wondering if they should be investing right now. Simply answered: Yes.
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Think of market dips as discounts
One of the only things certain in stock investing is volatility. It has historically been true, and there's no reason to believe it'll change in the future. If you're investing for the future and believe in the long-term potential of the companies you're investing in, the short-term price movements shouldn't concern you too much. If anything, you can view these downturns as discounts.
If you were willing to invest in a company or fund at $200 per share and the price drops to $180, you shouldn't be discouraged; you should consider this as a chance to lower your cost basis and get a bigger share if you so choose. If you buy 10 shares of a company at $200 per share, your cost basis is $200 per share. If the price drops to $180 and you buy 10 more, your cost basis is now $190 per share. That means if the price rises to $200 again, you'll have $200 in unrealized gains.
Focus on your long-term goals
One of the main reasons to invest is to make sure you're financially comfortable and able to live how you wish to in retirement. You likely won't be able to accomplish this if you're sporadically investing whenever you feel like the market is "good." Instead, you'll want to be making consistent investments over time, regardless of the market conditions at the time.
If you have a 401(k) plan, short of you stopping contributions totally, they'll continue to go into your account. If the market is bad, contributions still happen; if the market is good, contributions still happen. No matter the market conditions, you'll continue to invest -- that's how dollar-cost averaging works, and it's a strategy you should strongly consider.
There are two primary ways to get paid from a stock: an increase in the share price and dividend payouts. The first one is the obvious way, but many people underestimate the power of dividends.
Take AT&T, for example. On Jan. 4, 2021, AT&T's stock closed at $29.44, and on Jan. 3, 2022, it closed at $25.43. Although the price decreased by $4.01 during that span, you earned $2.08 in dividends per share if you were a shareholder. Obviously, the $2.08 gained is less than the $4.01 lost, but if you're a long-term investor, you should be less concerned with the current stock price than the income you earned just by holding the stock.
Believe in time
If you're investing in blue chip companies -- which are well-established companies with a history of being great investments even in bear markets -- you can have faith that their business should weather whatever storm the market is going through.
