Suze Orman Says Young People Should Want the Stock Market to Go Down. Here's Why
- The stock market is apt to experience its share of volatility.
- Rather than fear a downturn, you can use it as an opportunity.
- A down market can offer chances to invest for less money.
It may seem counterintuitive, but it makes a lot of sense.
If you've had money in a brokerage account or IRA since the start of the year, you may have seen your balance decline substantially at different points over the past eight months. It's definitely been a wild year for the stock market, and while many investors have enjoyed a rally in August, it's hard to predict what the rest of 2022 has in store.
Now, you may be hoping the market comes back up quickly -- namely, so your portfolio can recover any value loss it experienced earlier on in the year. But if you're fairly young, financial expert Suze Orman says you should actually want the stock market to go down. Here's why.
An opportunity to invest on the cheap
A stock market downturn can be a devastating event if you're within a few years of retirement. If your portfolio tanks to a serious degree, you may be forced to postpone that milestone until your IRA or brokerage account recovers. (Of course, the best way to protect against that is to have several years' worth of expenses in cash, but not everyone follows that rule.)
But if you're young enough that retirement is decades away, there's really no reason to sweat a stock market downturn. Quite the contrary -- Orman insists it's something you should actually hope for.
Why so? A good approach to investing is loading up on quality stocks and holding them for many years (something Orman has advocated for on her podcast). Some of those stocks might pay you dividends regularly. Others may not. But either way, if you hold onto your stocks for a long time, there's a good chance they'll end up gaining value so that by the time you're ready to unload them for cash, you'll be in a good spot.
When the stock market takes a tumble, it gives you an opportunity to scoop up quality investments at a lower price point. And that could, in turn, set the stage for even more wealth-building opportunities.
So, let's say there's a stock you want to invest in and hold for the next 20 years. Wouldn't you rather buy shares at $150 apiece than $200 apiece? During a stock market downturn, you might get that opportunity.
Don't time the market
While Orman insists that stock market downturns aren't a bad thing for younger investors, it's also not a great idea to try to time the market -- meaning, to actively try to buy a stock at its absolute lowest point. If you take that approach, you might spin your wheels chasing lows and lose out.
A better bet? Try dollar-cost averaging, a strategy in which you commit to buying shares of specific stocks at preset intervals, regardless of market conditions. The upside of dollar-cost averaging is that it takes fear and emotion out of the investing equation. Instead, you simply make a plan and stick to it.
Stock market downturns aren't unusual. In fact, corrections, where stocks lose 10% or more of their value, are equally quite common. If you're young, you don't have to let that rattle you. If anything, look at it as a chance to buy stocks at a lower average share price -- and reap the benefits of doing so down the line.
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