There’s an interesting thing that happens when you stop paying attention to what the market is doing . . . nothing.
I gave up on following market news a while ago because, frankly, it made me way too angry. Every article would always be the same – some guy predicting a big market crash for whatever year was coming up. It seems like the best way to make a name for yourself is to just keep predicting recessions and market crashes. Even if you’re wrong, no one seems to care – you just make up some excuse for why you were wrong and continue making more predictions. Then, when you finally do get it right, you get to go on every news show and be the financial seer that predicted the last big crash!
Maybe I need to start doing that…
In all seriousness though, downturns, crashes, and recessions do happen – there’s no way around that. The problem is that these big predictions are what sells to the masses and as a result, this is what people see when they’re scrolling around the internet reading financial news. It has the unfortunate effect of confusing and scaring people so that they ultimately do nothing.
You can see this in action just by scrolling through online forums. Over the past few years, I’ve increasingly seen more and more questions on Reddit and other forums from new investors asking if they should hold off on investing and wait for the next market downturn. Indeed, if you go back all the way to 2013, you’ll see people asking this same question – things were too high even back then. Everyone is just so scared that the day they start investing will be the day that everything comes crashing down.
The simple, straightforward advice I give is always the same. No, you don’t need to wait because, more likely than not, you cannot predict where the market is going.
But even more importantly, on a practical level, it really doesn’t matter what the market does at any given point because you’re going to be investing in small chunks over a long period of time anyway – likely hundreds of times over the course of your life. Sometimes the market will be up. Sometimes it’ll be down. But you’re never risking it all at once, at least not when you think about how investing works on a practical level.
We All Dollar-Cost Average By Necessity
There’s this big fear that most people have where they think they’ll invest their money into the market and lose it all. The solution to this problem has always been to dollar cost average your way into the market.
The general concept behind dollar-cost averaging is fairly simple. You basically take a lump sum, break it up into smaller pieces, and invest those small pieces on a regular, consistent basis over a period of time. If you have $100,000 to invest, rather than investing it all at once and risking a big loss if the market is on the decline, we instead might divide that $100,000 by 12 months and invest the same amount each month. If the market goes down, we’re investing small amounts as the market drops – buying each share at a cheaper price and reducing our potential losses. And if the market goes up, we’re doing the same, investing as the market goes up.
Over the long run, dollar-cost averaging does worse when compared to lump-sum investing. This makes logical sense when you think about it. The market tends to go up more often than it goes down, so in general, if you dollar-cost average, you’ll more likely be investing as the market goes up, rather than as it goes down. As a result, most people would benefit more by investing everything they have at once, rather than dollar-cost averaging their way into the market.
People who are worried about the market being too high right now are essentially thinking in terms of lump-sum investing. They’re afraid that they’ll put in their money now and see it drop. But the nature of income doesn’t work like that. Even though many of us might make $1 million or more over the course of our lives, none of us gets it all at once. Instead, we get it in small amounts. And on a practical level, we can only invest small amounts each time.
In short, this means two things when it comes to investing: (1) you probably don’t have hundreds of thousands to invest all at once, and (2) you’re probably looking at an investment time horizon that’ll stretch decades, with hundreds of smaller investments over that period of time.
I think of this as basically dollar-cost averaging by necessity. We’re all just breaking up our investing into little chunks over a long period of time. That’s actually a great thing because once we understand this, we can let go of our fear of losing all of our money. If the market tanks, we’ll still keep investing our income week-by-week, month-by-month. And if the market goes up, we’re still doing the same thing. Each investment is going in at a different point in time. None of it is going in all at once.
No One Invests Once And Never Again
The fact that very few of us have huge sums to invest all at once leads me to my second point about why I tend not to worry about where the market is at the time I invest.
None of us is just going to invest once and then never invest again.
This seems to be a big fear that people have – that they start investing, the market tanks, and they lose everything. If you look at the S&P 500 in 2007, that definitely would seem scary. Indeed, if you started your investing career at the top, you’d have seen that money drop by almost 50%.
But unless you got super spooked by the financial crisis, you didn’t just invest at the top and then stop investing forever. Instead, assuming you stayed the course and kept your job, you probably just kept investing regularly as you got paid.
You’ve got small amounts invested at the top, but you’ve also got money invested in the middle and at the bottom. Some of your money went down a lot. Some of it went down just a little bit. And some of your money might even grow from the day you put it in.
If you invest today and the market crashes tomorrow, that’s not the end of your investing career. You’re going to be investing again later, dollar-cost averaging into the market out of necessity because that’s how money and income works.
You don’t just invest once. Instead, you invest hundreds of times.
You Have A Long Investing Horizon
So is the market too high? Is the next big crash coming? I have no idea. What I do know is that, for practical purposes, it really doesn’t matter.
Yes, it’s better to invest when prices are low, but 10 years from now, 20 years from now, or 30 years from now, what will these prices look like? If we believe that the future is bright, then it stands to reason that these prices might look very low in the future.
It’d matter more if we only invested huge lump sums every once in a while. But we don’t. Even those of us looking to retire early are still likely to have an investing time horizon of a decade or more where we are regularly putting money into our investments. If we’re investing 12-26 times per year, that’s hundreds of different prices we’ll pay for our stocks and bonds.
Some of those prices will be higher and some will be lower. But the beauty of this is that our investments are going to be spread out over time, which reduces our risk over the long term. We’ve really got time on our side here.
Now, if you hit the jackpot and win a million dollars all at once, then you can be worried. But until then, if you’re investing using your income like 99% of us do, then you really don’t have a lot to worry about. Just keep that income coming in and remember that you’re not actually putting it all on the line right now. There’s always going to be more money coming in.
More Recommended Ebike/Scooters
Check out these other ebikes/scooters I've had the chance to do a review for:
- GEN3 Outcross Bike – The GEN3 Outcross is a solid, affordable fat tire ebike that does a good job of doing what I need it to do. It works great for city riding, giving me a smooth ride in all conditions. It’s works really well as a winter ebike since the fat tires give it good traction over snow and ice. Check out my GEN3 Outcross Review.
- Himiway Escape Bike – The Himiway Escape is an interesting bike for anyone looking for a moped-style ebike. If you’re a gig economy worker, the Himiway Escape is particularly interesting and it’s possible to think of it as an investment, especially if you can opt to do deliveries with the Himiway versus using a car. It’s not cheap, but you can definitely make your money back when you compare the mileage you’ll put on your car versus using an ebike. Check out my Himiway Escape Bike Review.
- Espin Sport Bike – The Espin Sport is a good ebike for someone who is looking for an ebike that feels and rides more like a regular bike. There are many ebikes that are really only bikes in name. In reality, they’re basically electric mopeds. The Espin Sport, by contrast, is a bike you could probably ride without the battery and you’d feel like you’re just riding a regular bike. Check out my Espin Sport Review.
- Varla Eagle One Scooter – The Varla Eagle One is an excellent scooter that can make sense for a lot of people. It can work as a primary mode of transportation. You can use it to work on gig economy apps like DoorDash, Uber Eats, and Grubhub. And it can also be a recreational vehicle if you’d prefer to use it for that. Check out my Varla Eagle One Review.
- Fucare H3 Scooter – The Fucare H3 is a fun scooter and I’ve enjoyed testing it out. For a daily commuter or quick trips or errands, the Fucare H3 is probably the scooter I’ll use. It’s portable and easy to maneuver, so it’s just easier to take on the road when I need it. Check out my Fucare H3 Scooter Review.
More Recommended Investing App Bonuses
For additional investing app bonuses, be sure to check out the ones below:
- M1 Finance ($10) – This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account. Check out my M1 Finance Referral Bonus – Step-By-Step Guide.
- SoFi Invest ($25) – SoFi Invest is an easy brokerage account bonus that you can earn with just a few minutes of work. Use my SoFi Invest referral link, fund your SoFi Invest brokerage account with $100 and you’ll get $25 of free stock. I also have a step-by-step guide for the SoFi Invest referral bonus.
- Moomoo (5 free stocks) – Moomoo is a free investing app currently offering 5 free stocks (usually worth around $75-$100) if you open an account using a referral link and deposit $2,000. Read my Moomoo referral bonus guide for more information.
- Webull (5 free stocks) – Webull also gives you 5 free stock valued between $3-$3,000 each if you open an account using my referral link. Here’s a guide I wrote about how to earn your free stocks using Webull.
- Robinhood (1 free stock) – Robinhood gives you a free stock valued between $2.50-$225 if you open an account using my referral link.
- Public (1 free stock) - Public gives you a free stock valued between $3-$70 if you open an account using my referral link.
More Recommended Bank Account Bonuses
If you’re looking for more easy bank bonuses, check out the below options. These bonuses are all easy to earn and have no fees or minimum balance requirements to worry about.
- Chime ($100) - Chime is a free bank account that offers a referral bonus if you use a referral link and complete a direct deposit of $200 or more. In practice, any ACH transfer into this account triggers the bonus. This bonus is easy to earn and posts instantly, so you’ll know if you met the requirements as soon as you move money into the account. I wrote a step-by-step guide on how to earn your Chime referral bonus that I recommend you check out.
- Upgrade ($100) – Upgrade is a free checking account that’s currently offering a $100 referral bonus if you open an account and complete three debit card transactions. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Importantly, this bonus says that it’s now scheduled to end on October 31, 2022. As long as you get your account opened before October 31st, you should be eligible. Here’s a post I wrote with more details: Upgrade $100 Referral Bonus – Step By Step Directions.
- SoFi Money ($350) – SoFi Money is a free checking account from SoFi. They’re currently offering a $25 referral bonus if you open a SoFi account with a referral link and deposit $10. You can also make an additional $300 as well if you complete a direct deposit. This is a good bank that is also 100% free, so you won’t have to worry about managing this account. Here’s a post I wrote with instructions on how to earn your SoFi Money bonus: SoFi Money Referral Bonus: Step By Step Guide.
- Fifth Third Bank ($250) – This offer is limited to customers in the following states: Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, West Virginia, and South Carolina. If you don’t live in one of those states, you won’t be able to open an account online but you can still open an account in-branch if you happen to be visiting a city that has a branch. This is a fairly easy bank bonus to earn, especially since there are plenty of data points showing what will trigger the direct deposit requirement. In addition, you can open the Fifth Third Momentum Checking bank account, which comes with no monthly fees or minimum balance requirements. Read my guide on this bonus here.
- Current ($50) – Current is a free fintech bank that’s offering new users a $50 referral bonus after signing up for an account using a referral link.Current is an easy bonus to earn and also gives you access to three savings accounts that pay you 4% interest on up to $2,000. That means you can put away up to $6,000 earning 4% interest. That’s very good and makes Current an account I recommend to everyone. Check out my step-by-step guide on how to earn your Current Bank bonus.
- OnJuno ($100) – OnJuno is a fintech/neobank that is currently offering a $100 referral bonus if you open an account using a referral link and complete a direct deposit of $250 or more. The account has no fees or minimum balance requirements. Even better, the bonus posts immediately after you meet the requirements. If you can meet the direct deposit requirements, OnJuno is an easy bank bonus that’s worth snagging. Check out my OnJuno referral bonus guide here.
- Varo ($50) – Varo is a free fintech banking app similar to Chime or Current. It’s currently offering a $50 bonus to new users that open a new Varo account with a referral link. The bonus for this bank is very easy to meet, all you need to do is spend $20 within 30 days of opening your Varo account. Check out my step-by-step guide to learn how to earn this bonus.
- Fairwinds Credit Union ($100) – Fairwinds Credit Union is offering a referral bonus for users that sign up using a referral link. Fairwinds has no fees or minimum balance, so this is a particularly easy bonus to earn. Since this is a smaller credit union, my gut instinct tells me this offer won’t be around long, so if you’re in a position to meet the bonus requirements, grab this bonus before it’s gone. Here is my step-by-step guide on how to earn your Fairwinds Credit Union bonus.
- Novo Bank ($40) - Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. In addition to being a good bank bonus, Novo is also a good business checking account. It has no monthly fees or minimum balance requirements and operates a good app and website. Indeed, it’s the business checking account I currently use for this blog. Check out my post on how to easily open a Novo account.
- Spiral ($50) – Spiral is a fintech bank that's currently offering new customers a $50 signup bonus after opening a free checking account with them. The Spiral referral bonus is especially good because it's a free checking account and doesn't require a direct deposit to earn the bonus. Here is my step-by-step guide on how to earn your Spiral Bank bonus.
- One Finance ($50) – One Finance is a fintech bank that’s currently offering a $50 signup bonus if you open an account using a One Finance referral link and have a direct deposit of $250 or more. This is a completely free bank account with no minimum balance requirement, so if you can meet the requirements, it’s worth doing. Check out my One Finance referral bonus guide here.
- Albert ($150) – If you can manage to do a real direct deposit, Albert is an easy account you can use to earn a referral bonus. Here’s a review about Albert I wrote. And here’s a step-by-step guide on how to earn your Albert referral bonus.
- Netspend ($20 + 5% Interest Savings Account) – Netspend is a company that provides 5% interest savings accounts. If you sign up using my referral link, you’ll get a $20 signup bonus once you make your first deposit into your Netspend account of $40 or more. That means you get a 5% interest savings account and a free $20 to start! Make sure to check out my in-depth guide on how to set up these accounts.
Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.
Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.
Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:
- SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $300 if you complete a direct deposit.
- Upgrade Bank. Upgrade is a free checking account that’s currently offering a $100 referral bonus if you open an account and complete three debit card transactions. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Note that it’s now scheduled to end on October 31, 2022.
- Novo Bank. Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. It’s the business checking account I currently use for this blog.
- M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account.
- Personal Capital. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.
Feel free to send Kevin a message here.
There is a phrase that encapsulates much of what you wrote: “It is not timing the market, it is ‘time in’ the market.” In other words, get as much of your money into the market as soon as possible. I didn’t DCA. I didn’t set aside a certain amount per time period for investing. Instead, I would just repeatedly move money into a mutual fund ASAP. Frequently, I would just do a month-on-month comparison. For example, I would look to see what my balance was last month after the rent check cleared vs. this month after the rent month cleared. If this month’s balance was higher, I would take the difference and invest it in the market. Similarly, any bonuses I received went into the market. Some months, I would be running behind schedule compared to the previous month so I wouldn’t invest.
What I have found since the “Trump tax cuts” is that my investments are throwing off so much interest and dividend that I need to increase my payroll withholding to cover the income taxes on my investments. That lowers my take home pay to the point where I am running a “deficit” every month. “Deficit” in this context means my take-home pay is not covering my living expenses. That’s because my dividends & interest are incurring increased taxes but I still have the dividends & interest to help pay my expenses. However, the rate of my new investments has slowed down. I look upon this as a bit of trial run for retirement. I need to tap my portfolio to cover a portion of my living expenses.
The way you moved money into the market over your lifetime is exactly why I’m not too worried about where the market is. You bought in at so many different price points that ultimately, it really doesn’t matter when you went in – just that you went in. Thats my thought anyway.
While DCA every month may be a good idea, what about the minimum fees you have to pay to brokerages? You’ll be spending too much money on fees instead of having the money actually working for you. What I plan to do is dropping $10k every year (I’m just a student.) since only that way will paying the fee make sense. What are your thoughts on this?
You shouldn’t pay any fees to invest besides paying expense ratios, which is unavoidable. Don’t use any brokerage that charges you a fee to invest. Vanguard is free. Roboadvisors like M1 Finance are also free.