While timing can be risky when it comes to determining when to buy and sell, by investing on a regular basis, investors can use time to their advantage by investing sooner rather than later. A key mistake that investors often make is waiting too long before putting money away for long term goals, such as retirement or their children’s education. Initiating a systematic investment plan for long term goals as early as possible is important. In fact, even waiting a single year or skipping a single contribution can have a significant impact on your progress.
Investors who are already utilizing the dollar cost averaging strategy when market values are low may be better positioned to take advantage of a bull market immediately. By investing on a regular basis, they have likely taken advantage of purchasing lower priced securities. While it is impossible to pinpoint exactly when a bull market will begin, investors can reflect on the history of the market to get an idea of what has happened in the past. Investors who are investing in the market during bear markets will be poised to take advantage of the start of a bull market whenever it may occur.
Since continuing to invest in the market on a regular basis is recommended by many investment professionals as a practical and wise investment strategy, it is hard to believe that some investors do not want to invest during a bear market. Avoidance of the market may be their way of protecting themselves from loss. In reality, avoiding investing may have a significant impact on an investor’s long term financial goals, such as retirement.
While there are no guarantees when investing, and there is risk associated with the stock market, an individual who chooses not to invest today may lose out on the benefits of long term investing, such as the power of compounding. Through compounding, investments generate earnings on reinvested earnings. If you continue to invest regularly over an extended period of time, such as with retirement accounts in which your contributions have a chance to accumulate and grow for years or even decades, the effects of compounding can really add up.