Consider Your Time Horizon
If you have been watching the news at all over the last few months, you are aware that the stock market has been a pretty hot topic of discussion. The 4th quarter of 2018 (the last 3 months of the year) were very volatile and many investors saw their account balance going the wrong direction. I know the parts of the market I watch were. You may hear people talking worriedly about how it affects them, however, there is something to keep in mind, especially if you are a young investor: your time horizon.
In the financial world, we talk about the amount of time you plan to invest as your time horizon. Picture it like a skyline. As a young investor you would be the rising sun, as you are in your prime earning years the sun is high in the sky and as you near retirement the sun approaches the horizon.
Financial planners and investment advisors must get to know you and appropriately identify your time horizon before they can recommend investments. They like to have an idea of your risk tolerance. Traditionally, advisors may recommend (not accounting for any other risk tolerance measures) that the longer your time horizon, the riskier you can be as an investor. This is because over the long term the stock market has historically gone up. They assume with a long time horizon, you will have time to weather the storms, like what we have seen the last few months. As you near retirement and your time horizon is relatively short, you must be more conservative.
So what should you take away from this? Do not be concerned with the stock market volatility as a young investor! Continue to invest, in fact maybe even invest more as the stocks are “at a discount”. By buying more during times of poor performance, you are buying low and selling high which is what we want to do. That being said, don't get caught up in the drama that comes with a market downturn, just stay the course and keep investing.