Easing Into Stocks

WHILE LOUSY STOCK market returns can be great for those saving for retirement, many investors don’t see it that way. Their big fear: They’ll invest in stocks, only to get hit with a devastating market decline that triggers hefty financial losses and painful pangs of regret.

How can you overcome this fear? If you’re young and just starting out, keep in mind that, while this month’s investment may take place at lofty prices, you have decades of regular investments ahead of you, and those investments will occur at all kinds of different prices. It’s easy to get caught up in the guessing game about the market’s short-term direction, but today’s market angst is a big distraction from the long-term story. Over the 50 years through year-end 2023, global stock markets—as measured by the MSCI World index—returned 9.1% a year, including so-called net dividends, enough to turn $10,000 into $782,000.

Things are trickier if you’re older and have a large lump sum to invest. Perhaps you received an inheritance or a severance payment when you left your employer. Maybe you have been sitting in cash, worried about the stock market’s short-term direction, but now realize that you’re hurting your results.

What to do? History tells us that, on average, you would have earned the highest return by getting fully invested in stocks right away. Problem is, you won’t get an “average” result. Instead, you have just one shot—and you probably can’t afford the risk of dumping a huge sum into stocks and then seeing the market plunge 50%.

One possible strategy: Take the money you have earmarked for stocks, divide it into 24 or 36 equal sums, and then spoon the money into the market every month for the next two or three years. If the market drops 15%, double the size of your monthly investment. If it drops 25%, triple your monthly investment.

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