Do you know what the ultimate stock market hack is? Dollar-cost averaging.
If you are consistently adding money to your investment portfolio, you want the stock market to crash. Volatility is what allows you to hack the stock market. Growth in your early years isn’t quite as delightful as it sounds. Think about it. If you add money to the stock market while it’s low, you get to buy more.
First Thing’s First: What is Dollar-Cost Averaging?
Simple. It’s investing the same dollar amount on a regular basis. You probably do this in your 401(k). Once or twice a month, you deposit an equal amount into your investment account and put it to work.
When the market is up, you buy fewer shares. When the market is down… oh when the market is down. <3 You get to BUY MORE SHARES.
Stock Market Volatility Hack Example
This is a table you want to look at! Let me explain:
You invested $1,000 each month in the same fund for 24 months. The fund price started at $20/share. The price declined for 12 months straight… but you kept investing! Slowly, the stock price started to recover, and it finished right back where it started: $20/share.
At first glance, that is a 0% return.
But wait! Because you were buying the fund on sale you had MUCH better results! 19.17% return, in fact!
Investing on a regular basis is how you survive and thrive through stock market volatility.
You can thank one of my favorite finance authors, Nick Murray, for this example. He has inspired me before in blogs like, Is the Stock Market Risky?
Your Action Plan
Ok, so you now know what dollar-cost averaging is, but how do you make it work for you? Obviously, it will be different for everyone, but here are some suggestions:
1. Sign up for your 401(k). Not sure what to do with your 401(k)? I have tips HERE.
2. Don’t have a 401(k)? Open an IRA or Roth IRA and set up an automatic investment plan.
So, there is your stock market volatility hack. It’s not some secret hot stock pick. It’s not putting it all in a meme stock or cryptocurrency. The hack is consistent, long-term investing!
Want to hear more about volatility? Listen to Episode 017: Am I On A Roller Coaster? of the Invested Dads podcast!