Andy Rachleff, co-founder and Executive Chairman at Wealthfront, which recently agreed to be acquired by UBS, says that we should keep investing even while the market is volatile.
Andy writes in a blog post that when markets are volatile (as they are currently), investors sometimes get “uncomfortable.” When your investment portfolio temporarily loses value, it can be really “tempting to try and minimize your losses by stopping your regular investment account deposits.”
Andy points out that “unfortunately, when it comes to investing in a volatile market, what feels right is often wrong.”
Andy also mentioned that investors usually face a rising but volatile market in the long-term (over the next 10 years).
As explained in a blog post, “interim volatility doesn’t matter; a volatile market can actually work to investors’ advantage because it gives them opportunities to buy at a relative discount.” That doesn’t mean you should “wait for a volatile market to invest, because it’s almost impossible to time the market,” Andy clarified.
He added that the lesson is you should “ignore the behavior of the market if you intend to invest steadily and don’t plan on touching the vast majority of your account value for a number of years.”
He also noted that markets “generally rise over time.” So if your investment horizon is fairly long (3-5 years or more), then what happens in between “doesn’t matter very much as long as your portfolio is ultimately worth more than what you paid for it.”
He acknowledged that “loss is uncomfortable, even if it’s temporary.” However, he pointed out that it is “important to remember that volatility is a normal part of investing, and you don’t actually lose any money unless you sell your investments for less than what you paid for them.”
Andy also noted that “history shows that markets tend to rise in the long run, which means if you stick to your strategy and keep investing, you’re likely to come out ahead.”
The Wealthfront team added that your ideal portfolio “doesn’t necessarily look like anyone else’s.” That’s why over the past year, they’ve made it possible to “customize your Wealthfront portfolio to match your individual preferences and beliefs with hundreds of investments from categories including clean energy, tech, and more.”
The company shared:
“We’re making it even easier to explore our menu of investment options. You can browse investments by category (like tech and innovation or cryptocurrency trusts), search for a specific investment you’re bullish about, or simply research the ETFs in our expert-built (but still fully customizable) portfolios like our Socially Responsible portfolio. If you find a portfolio or investment you’d like to add, you can do it easily by logging into the Wealthfront web site or using the Wealthfront app.”