65% of Americans are doing “the polar opposite of what they should be doing,” says one investment expert — here’s what to do instead — CNBC | Omd Cialis

If your favorite store offered a 13% discount on the goods, you would probably fill your shopping cart. But if you’re like many Americans, you might find that you’re not quite as enthusiastic about a discount when buying stocks.

The S&P 500 — a common indicator for the broad U.S. stock market — is down 13% in 2022, but people aren’t buying stocks at cheaper prices anymore. According to a recent Allianz Life survey, only one in four Americans says it’s a good time to invest in the stock market, and 65% say they keep more money out of the market than necessary for fear of investment losses.

Those fears aren’t entirely unfounded: Any investment can go down, and investment losses can be painful — especially for people looking to live off their investment income for the short term.

But when you’re investing for a goal that’s years away, keeping your money out of the market through fear is a big mistake, says Kelly LaVigne, vice president of consumer insights at Allianz Life.

“When the market is doing well, people throw their money at it. When things go badly, they hold back their money,” he says. “It does exactly the opposite of what you should do.”

That’s why investment experts say it’s unwise to keep your money out of the market now, even when things look scary.

Young Investors: Time is on your side

You may be holding money on the sidelines waiting for the market to calm down. But until you’re close to retirement, you’re sacrificing your most valuable asset as an investor: time.

“The younger you are, the more you need to be in the market,” says LaVigne. Because the further away you are from your investment goal, the more time your portfolio has to recover from market slumps. And given the market’s long-term historical uptrend, starting earlier and staying invested means taking maximum advantage of compounding returns.

Suppose a 22-year-old planning to retire at 67 starts by investing $1,000 in the stock market, followed by $100 a month. If her portfolio produces a 7% annual return, she’d retire on almost $405,000, according to CNBC’s Make It compound interest calculator. If she starts just five years later, other things being equal, her total drops to $280,000.

Market Timing: “You Will Miss the Uptrend”

“But wait,” you might be thinking. “I’m not going to wait five years to get my in-game money back. I’m just waiting for the market to bottom so I can push it back up.”

Here’s the problem: In order to make profits over the long term, you have to invest on the best days of the market. And they often come right after the worst.

Over the 20-year period ended December 31, 2021, the S&P 500 returned 9.52% annualized. Excluding the top 10 days from this period, the yield drops to 5.33%, according to JP Morgan analysis. During this period, seven of the market’s best days have occurred two weeks after one of the ten worst days.

“We have no idea where the bottom of this downturn is, but we do know for a fact that if you keep money out of the market, you’re going to miss the bounce,” LaVigne says. “The worst thing you can do is not be in the market when it starts to turn.”

Invest consistently in falling markets

Nobody likes the feeling of seeing big red numbers on their portfolio page. But investing long-term with a well-diversified portfolio isn’t necessarily a bad thing, says Jeremy Finger, board-certified financial planner and founder of River Bend Wealth Management in Myrtle Beach, South Carolina.

“You should want the market to be down, down, down so you can buy at low, low prices,” he says. “Then if you could snap your fingers like a ghost, you would want the market to go up just before you retire.”

No one is able to magically control the stock market, but as an investor, you can control how you handle its ups and downs. One way to avoid getting caught up in what the market is doing is to invest a set dollar amount on a regular basis. This strategy, known as dollar cost averaging, virtually guarantees that you’ll buy more stocks when they’re cheaper and less when they’re more expensive — effectively, buying low and selling high.

Right now, the market is leaning more towards the “buy low” side of things, points out Aaron Clarke, a CFP and founder of Gig Wealthy. “You get a great entry point for the next 30 years of investing,” he says. “And if it goes a little further down, fine.

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