Dave Ramsey Says 'Investing Can Be a Roller Coaster.' Here's How to Not Get Hurt

For much of his career, Dave Ramsey has said that investing can be a roller coaster, and it's an apt comparison. Just like a roller coaster, the stock market goes through its fair share of ups and downs.

Take the performance of the S&P 500. That's a stock market index tracking 500 of the largest publicly traded companies in the United States. Last year, it declined by nearly 20%. If you had invested $1,000 at the start of 2022, you would've ended up with a little over $800. But it has had its fair share of good years, too, including many where it rose by 20%, 30%, or more. And it has an average return of 10% per year.

Unfortunately, the ups and downs cause some people to make poor investing decisions. If market volatility is worrisome to you, Ramsey has a great piece of advice that can help.

How to not get hurt on the investing roller coaster

The best way to invest is to do it consistently, without changing your strategy based on what stock prices are doing. Ride those ups and downs, because over long time periods, the stock market grows in value. As Ramsey puts it, "No one gets hurt on a roller coaster except those that jump off in the middle."

Now, staying on an actual roller coaster is easy. It's clearly not a good idea to jump off one of those. Keeping your money in the market can be quite a bit more challenging, because it may seem smart to jump in and out.

This is called trying to time the market, and the general idea makes sense. Instead of watching your investments go up and down, why not buy low and sell high?

For starters, it's impossible to reliably time the market. Even the professionals don't know with certainty what's going to happen. And when people try to time the market, it almost always goes poorly, for one of two reasons:

• They make bad investing decisions based on their emotions. Despite their intentions, many people end up doing the opposite of buying low and selling high. They get excited when prices are high and buy in, and then panic sell their investments when prices are low.
• They miss the market's best days. To maximize your return on investment (ROI), you need to be invested during the days when the market performs the best. If you miss even a small number of days, it can have a massive impact. For example, between 1992 and 2021, missing the S&P 500's 10 best days would cut your total returns by 54%.

Stick to consistent, long-term investing

Investing is an important financial habit, and "habit" is the key word. Your investing routine shouldn't be something you change all the time based on market conditions. Here's what you should do instead.

First, if you haven't already, choose your investments. This is extremely important, because it's much easier to stay in the market through highs and lows if you're confident in your portfolio. You could pick stocks yourself, but an easier option is putting your money in investment funds. All the top stock brokers have these funds, which invest your money in a large number of stocks. Popular options include:

• Exchange-traded funds (ETFs)
• Mutual funds
• Target-date retirement funds

Let's say you want to invest your money in all the major companies so you have a diversified portfolio. You could invest in an S&P 500 ETF that will put your money in 500 of the largest companies on the market. Or, you could go even broader with a total stock market ETF. Most brokers will have both of these options available.

Next, decide how often and how much you're going to invest. For example, you could invest $1,000 on the 15th of every month, or $300 every week. A popular starting point is 10% of your income, but you can do more or less depending on what works for you. And if you get a raise, or just decide you want to invest more, you can always do that.

After that, it's just a matter of sticking to your schedule. Consistency pays off. If you invest $1,000 per month for 30 years and get an 8% annual return, you'd end up with nearly $1.5 million. That's the power of investing -- as long as you don't jump off the roller coaster in the middle of the ride.