Suze Orman’s No. 1 Tip for New Investors Who Are Afraid To Get Into Stocks
Written by
Chris Adam
Edited by
Jenna Klaverweiden
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If you’re a new investor or thinking about getting involved in stocks, you may have some concerns about volatility when it comes to the markets. You’ve worked hard for your money and want to grow it, but you also don’t want to risk losing it with a big shift on Wall Street.
It can be hard to know where to start as a new investor, especially with strategies to help lower risk. But financial expert Suze Orman has a solid way to approach the stock market as a new investor. In fact, 24/7 Wall St. said this is her “best advice for new investors who are scared to put their money to work in markets.”
Here’s a look at this piece of advice from Orman and how new investors can benefit from following it.
Ease Into Investing With Dollar-Cost Averaging
Orman is a big proponent of dollar-cost averaging. “Dollar-cost averaging is where you take a specific sum of dollars and you invest it month in or every three months into whatever you are investing in,” Orman said in an episode of her podcast, “Women & Money,” earlier this year.
For new investors, dollar-cost averaging may be a way to ease into investing and help protect money, as it allows one to invest a set amount of money on a regular basis, regardless of the share price.
Let’s take a look at how it might work. You may have $1,200 to invest in a given year in a specific asset class. Rather than investing it all at once, with dollar-cost averaging you could invest $100 a month every month for a year.
If you use this strategy, you’ll still be investing the same amount of money, but you’re investing at different times and taking advantage of stock fluctuations. Plus, you may be able to avoid some risks by splitting your investment over a longer period of time. This may be particularly helpful if you’re investing during a volatile time.
The Many Benefits of This Strategy
“So [the investment] gave you diversification. It gave you a return. It will continue to go up, continue to go down, is paying you a nice dividend,” Orman said in a podcast episode. “And so, that’s why I like dollar-cost averaging. Because in markets that are crazy, maybe you don’t make as much money as if you’ve just taken all of your money and invested it, but you’re not going to lose it either.”
Yet another benefit of dollar-cost averaging is that you’re not trying to time the market. This means waiting for what you think is the right time to buy or sell an investment. It can be a tricky strategy to try to implement, particularly if you’re a newer investor.
Obviously it’s good to invest when prices are low, but trying to time the market is nearly impossible even for seasoned investors and professionals. On the other hand, if you take advantage of dollar-cost averaging, you can benefit from price declines that reduce the average cost per share in the market.
According to Charles Schwab, dollar-cost averaging is also a good way to develop discipline as an investor, since you’re putting in a fixed amount on a regular basis. Additionally, it can help you become more efficient with your investing and may help lower your stress level and your average cost per share.
If you’re considering dollar-cost averaging, you might want to take a look at your overall money goals, current situation and risk tolerance. It can be a strategy to help you get started with investing and overcome some fears along the way.
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