A few days ago, the stock market was hit by a serious drop. The Dow Jones plunged by 4.6 percent—one of the biggest drops in history. This made investors extremely nervous.
But not me. I ignore the stock market.
And, if you want to consider yourself a savvy investor, you should too.
So what should you do instead?
Invest in mutual funds
Asked to sum up my investing advice to anybody between 18 and 35, it’s this: After you have some cash saved for emergencies, invest as much money as you can afford (starting with tax-deferred retirement accounts) in aggressive low-cost mutual funds that focus mostly on stocks.
It’s true: Especially if you’re in your twenties or thirties, where the stock market is going in the next month, the next year, or even the next ten years, doesn’t matter. What matters is that you’re putting a portion of your income aside and investing it (hopefully in tax-deferred accounts when possible), day in and day out.
So when the stock market has a really awful day, ignore it. When it has a great day, ignore it. Just don’t ignore this advice, or you end up buying high and selling low. That’s not good.
Just keep funneling money into your investments. Focus on investing in yourself and increasing your earning potential (so you can funnel more money into your investments). Let time do the rest.
It’s why you don’t see me write an awful lot about investing strategy here on Money Under 30. There simply isn’t much to it. Most of my investments are in exchange-traded index funds that track entire market sectors and target-date retirement funds. I contribute to them on a regular basis to take advantage of dollar-cost averaging and, for the most part, forget about them.
Anybody trying to guess where the market is going by actively trading is most likely wasting money on fees and loads (and thereby reducing their returns).
Ignore the markets, but don’t ignore investing
I just have to clarify that when I say “ignore the stock market” I DO NOT mean “ignore investing.” Everybody—no matter how little you earn or how little you know (or care to know) about investin—should invest something for your later years.
Start with retirement accounts and move to regular brokerage accounts once you’ve maxed out your 401(k) and/or IRA.
Check out my list of recommended investment accounts to get started with an IRA or regular trading account today.
Finally, although nobody should fixate on regular market fluctuations, everybody should review their portfolios annually to ensure their funds’ fees are in check and their portfolio is balanced. Need help doing this? Ask your 401(k) administrator or investment advisor, or take some time to learn about how to rebalance your portfolio and general theories of asset allocation.
If you don’t have the time (or simply don’t want to spend the time) figuring out your portfolio, we recommend looking into a roboadvisor.
A roboadvisor is a diversified investment account that is automatically managed by a computer algorithm (as opposed to a human money manager).
It’s important to make sure that the potential fees associated with roboadvisors are worth it for your, though.
If you’re interested in taking a back seat and letting the computer do the work for you, here are our top picks for roboadvisors.
The stock market is far from the only way to invest. In fact, it may not be the best place to invest (although, some believe the opposite is true).
What do you think? Do you invest and forget about the market? Or you do disagree and think that even young people should pay attention to short-term market fluctuations and adjust investments accordingly?
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