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Investing

The bear market could be a good thing for new investors—here's why

Those who are new to investing can benefit by buying stocks cheaply and holding them long term.

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Phonlamaiphoto | Istock | Getty Images

After much talk about the stock market sliding into bear market territory, we saw it officially happen when stocks closed Monday with the S&P 500 falling more than 21% below its record high in January.

Simply stated, a bear market describes any stock index or individual stock that drops 20% or more from its recent peaks. The S&P 500's tumble at close Monday marks the benchmark index's lowest level since March 2021 and the first time stocks entered a bear market since the beginning of the pandemic in March 2020. This time, some key contributing factors to the market's fall include today's 40-year record-high inflation rate, recession fears and the expectation of interest rates rising once again this week.

While a bear market may signal falling stock prices and possibly a weak economy, it can actually be the perfect time for new investors to enter the market and start building wealth.

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How new investors can take advantage of a bear market

A bear market often offers an opportune time to buy stocks at a discount, making it a lower entry point for those who have generally held off from investing. Selling when everyone else is buying and, in this case, buying when everyone else is selling — also known as "buying the dip" — is a popular investing strategy that's even practiced by Warren Buffett himself.

Since stocks likely have a rough road ahead, meaning it will take some time before they pay off, new investors will have to enter the market with the goal of investing long term. Investing is a long game, after all, and by keeping your money in the market for a while, you'll have time on your side should you need to recover from any losses; these short-term dips won't necessarily set you back in the long run.

When you're ready to put your money in this market, start investing with small, specific dollar amounts regularly — a technique otherwise known as dollar-cost averaging. This approach spreads out your investments and allows you to buy into the market at different times at varying prices that ideally balance each other out versus investing one lump sum all at once — the latter may maximize returns, but it entails taking on more risk.

New investors can set up automatic contributions once or twice a month into an exchange-traded fund (better known as an ETF) or a mutual fund, both of which offer instant diversification. You can access these investment vehicles by simply opening an online brokerage account.

ETFs tracking the S&P 500 are some of the most popular for beginner investors. The Vanguard S&P 500 ETF (VOO) tracks the entire index and offers low management fees. Its current expense ratio (or the management fee) at the time of this writing is 0.03%, which means you'd pay just 30 cents per year for every $1,000 invested. For every $10,000 invested, that would equate to $3 per year.

Vanguard

  • Minimum deposit and balance

    Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open a Vanguard account, but minimum $1,000 deposit to invest in many retirement funds; robo-advisor Vanguard Digital Advisor® requires minimum $3,000 to enroll

  • Fees

    Fees may vary depending on the investment vehicle selected. Zero commission fees for stock and ETF trades; zero transaction fees for over 3,000 mutual funds; $20 annual service fee for IRAs and brokerage accounts unless you opt into paperless statements; robo-advisor Vanguard Digital Advisor® charges up to 0.20% in advisory fees (after 90 days)

  • Bonus

    None

  • Investment vehicles

    Robo-advisor: Vanguard Digital Advisor® IRA: Vanguard Traditional, Roth, Rollover, Spousal and SEP IRAs Brokerage and trading: Vanguard Trading Other: Vanguard 529 Plan

  • Investment options

    Stocks, bonds, mutual funds, CDs, ETFs and options

  • Educational resources

    Retirement planning tools

Terms apply.

When adding mutual funds to your portfolio, look for brokers that offer no transaction fees — these are commission fees for buying or selling a fund share — and low expense ratios. For example, Fidelity Investments has more than 3,400 mutual funds with no transaction fees, but keep in mind that some of Fidelity's mutual funds may require reaching specific funding thresholds. Its robo-advisor option, called Fidelity Go®, invests in zero expense ratio Fidelity Flex® mutual funds that do not charge management fees or, with limited exceptions, fund expenses.

Fidelity Investments

  • Minimum deposit and balance

    Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open a Fidelity Go® account, but minimum $10 balance according to the investment strategy chosen

  • Fees

    Fees may vary depending on the investment vehicle selected. Zero commission fees for stock, ETF, options trades and some mutual funds; zero transaction fees for over 3,400 mutual funds; $0.65 per options contract. Fidelity Go® has no advisory fees for balances under $25,000 (0.35% per year for balances of $25,000 and over and this includes access to unlimited 1-on-1 coaching calls from a Fidelity advisor)

  • Bonus

    Find special offers here

  • Investment vehicles

    Robo-advisor: Fidelity Go® IRA: Traditional, Roth and Rollover IRAs Brokerage and trading: Fidelity Investments Trading Other: Fidelity Investments 529 College Savings; Fidelity HSA®

  • Investment options

    Stocks, bonds, ETFs, mutual funds, CDs, options and fractional shares

  • Educational resources

    Extensive tools and industry-leading, in-depth research from 20-plus independent providers

Terms apply.

What to keep in mind before investing

Because your money in the market will ideally perform better the longer you keep it invested, your investment funds should be cash that you don't need for at least five years.

New investors will also want to make sure they already have savings set aside, ideally in a high-yield account, which offers above-average rates, beating out the return you'd typically earn with a traditional savings account. Plus, with bank accounts now raising their rates again, it's a good time to try and earn a higher Annual Percentage Yield (APY).

One of the best high-yield savings accounts is the Marcus by Goldman Sachs High Yield Online Savings, which has no fees whatsoever and provides easy mobile access. It's the most straightforward savings account to use when all you want to do is grow your money with zero conditions attached. Meanwhile, a top choice from a big bank is the American Express® High Yield Savings Account.

Marcus by Goldman Sachs High Yield Online Savings

Goldman Sachs Bank USA is a Member FDIC.
  • Annual Percentage Yield (APY)

    4.40% APY

  • Minimum balance

    None

  • Monthly fee

    None

  • Maximum transactions

    At this time, there is no limit to the number of withdrawals or transfers you can make from your online savings account

  • Excessive transactions fee

    None

  • Overdraft fee

    None

  • Offer checking account?

    No

  • Offer ATM card?

    No

Terms apply.

American Express® High Yield Savings Account

American Express National Bank is a Member FDIC.
  • Annual Percentage Yield (APY)

    4.25% APY as of 4/25/2024

  • Minimum balance

    Min balance to open = $0

  • Monthly fee

    $0

  • Maximum transactions

    No limits

  • Excessive transactions fee

    None

  • Overdraft fee

    None

  • Offer checking account?

    No

  • Offer ATM card?

    No

  • Terms apply.

  • American Express National Bank is a Member FDIC.

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Interest rate and APY are subject to change at any time without notice before and after an American Express® High Yield Savings Account is opened.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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