A Beginners Guide to Investing in the Stock Market
How best to invest in the stock market has been a mysterious concept for many Americans. Many may ask: “What is the best way to invest in the market? Should I pile into the market all at once, or spread my investments out over time?” While this question may seem complicated, historically there has been a clear winner. Though it may seem simple, dollar-cost averaging, or consistently investing every month or few months has been an incredibly effective strategy. In fact, “Over 240 months (from Jan 1, 1982, to Dec 31, 2001), if you had invested $100 a month ($24,000 total) into the S&P 500, you would have returned $84,650” (Johnson & Krueger, Journal of the Academy of finance). Put into simple terms by financial analyst Anthony Ryan,“Get into a habit and be consistent with it.” It is clear that the key to being a successful investor may not be an elaborate analysis of when the exact best time is to invest, but actually by being persistent in your investments. This method of investing is also much more consistent than trying to time the market. By dollar cost averaging, you make yourself much more resistant to short term shifts in the market. “Over a 5-year period, an investor can expect to get an average return of around 30%. Best case scenario an investment can double with SPY or end up losing 40% in the worst-case” (Chin, Towards Data Science). Furthermore, investment manager, David Grossman, says, “Dollar-cost averaging offers a simple way to enter the market while minimizing your potential regret as an investor,” To put it into simple terms, dollar-cost averaging is basic, consistent, and yet a highly effective investment strategy.