Should You Wait for a Market Crash to Open a Brokerage Account?

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KEY POINTS

  • A market crash provides the opportunity to buy assets at a discount.
  • Market crashes are inevitable.
  • You likely shouldn't wait for one to open a brokerage account.


Waiting for a market crash could backfire.

If you want to start investing, you will need to open a brokerage account. These accounts allow you to buy stocks and ETFs so you can get exposure to equities and hopefully earn generous returns over time to help you build wealth.

If you are considering opening a brokerage account, it may seem like a good idea to wait until there is a downturn in the stock market. After all, market crashes occur periodically, and when they do, stock prices go down and you get a chance to buy low and maximize your profits.

In reality, though, delaying the time you start investing is usually a bad idea, and waiting for a market crash can backfire and cause you to lose out on potential gains. Here's why.

There are big problems with waiting for a market crash to occur

If you're hoping to wait for the market to go down so you can invest at the optimum time, the big downside to this approach is that it's almost impossible to predict when a crash will come.

While there are certain factors that could suggest stock prices are likely to go down, such as signs of a coming recession, even the experts don’t know exactly how the market will react to economic news.

What’s more, even financial professionals can't time the bottom of the market precisely. If you're waiting for stock prices to fall, you could end up missing a market rally and getting stuck buying at high prices or being forced to wait until another downturn occurs.

You could also end up putting off investing for a long time, losing out on potential returns you could be earning even if you didn't buy at rock bottom prices. And since stocks and ETFs tend to produce higher average returns over time than many other assets you can invest in, this could come at a big cost.

What should you do instead of waiting for a market crash?

Ultimately, it's important to realize that trying to time the market is a losing battle, and you're better off opening a brokerage account as soon as you're in a financial position to do so.

This means you should open an account with a broker and begin investing once you have an emergency fund, an investment thesis that will enable you to build a diversified portfolio you believe in, and at least a little money you won't need in the short term.

If you open a brokerage account as soon as you're able to do so, you can use dollar-cost averaging to buy a solid mix of different investments to reduce your risk. This involves investing a set amount into particular investments on a regular interval so you don't have to try to get your timing perfect. If you buy regularly, you'll naturally end up investing during some downturns and will be able to get more shares at a discounted price.

The sooner you open your brokerage account, the sooner you can put your money to work for you with a proven strategy of long-term investing that's likely to pay off. So, get started ASAP if you've got the money to invest.

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