Dollar-cost averaging: A top strategy amid market volatility?

As geopolitical tensions escalate between Iran and Israel and inflation seems slow to come down, the market may appear chaotic. Amid the uncertainty, The Budgetnista Personal Financial Educator Tiffany Aliche joins Wealth! to share top tips for learning how to invest in a volatile market.

Aliche advises a focus on diversifying one's portfolio and maintaining a long-term vision. But the personal finance expert acknowledges that present concerns may distract investors, offering tips that succeed in market volatility: "My favorite is to consider dollar-cost averaging, so this is when you invest regularly at a specific interval because that means you get to catch the market when it's up, you get to catch the market when it's down, and on average, you get to average out what the returns are going to be."

The "Budgetnista" also signals that turbulence is normal and still presents opportunity: "Don't panic because volatility in the marketplace is a natural part of investing. That's just how it goes. And keep cash on hand. When there's volatility, there's deals to be found and made."

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Nicholas Jacobino

Video Transcript

BRAD SMITH: So stocks had their worst week of the year last week. But so far in 2024, markets have been on an upswing, and many strategists expect them to surge even higher through the end of the year. So how do you take a step back from the current volatility and continue to invest and build wealth?

Joining me now with some tips, we've got Tiffany Aliche, who is a personal finance educator, also known, of course, in your feeds as the Budgetnista. Great to see you as well, Tiffany. First and foremost, some volatility, but investors still trying to figure out, OK, where can they take a step back, assess the broader landscape, and perhaps make sure that their portfolio alignment is still in alignment with their goals at the end of the day.

TIFFANY ALICHE: No, definitely. So one, Brad, you're going to want to spread your investments across like a various number of asset classes. So like stocks, bonds, real estate, commodities. Diversification is always going to help you mitigate some risks, right? Also two, focus on the long term. I mean, I get it, there's ups, there's downs. But if you are a long-term investor, you understand that's just part of the way things go. So you focus on what long-term investing looks like and makes sure it aligns with your overall goals.

Third, I'd say beef up your knowledge, right? This is a really great time to really lean in and learn more about the asset classes that you're investing in and any new company you might be interested in. I actually partnered with one of my favorite investing experts, Teri Ijeoma. We have this five-day live masterclass that starts today actually, Brad. I hope I'll see you there. You can sign up at budgetnistastockbonuses.com.

But also my favorite is to consider dollar-cost averaging. So this is when you invest regularly at a specific interval, you know, because that means you get to catch the market when it's up, you get to catch the market when it's down. And on average, you will average out what those returns are going to be.

Lastly, I would say two things, don't panic because volatility in the marketplace is a natural part of investing. That's just how it goes. And keep cash on hand. Because when there's volatility, there's usually some deals to be found and made, so you want to be able to lean in and take advantage of them.

BRAD SMITH: Speaking of volatility, of course, and I'm not sure if you heard one of our earlier conversations, but we're trying to give people the best sense as well of how to perhaps exogenous threat-proof their portfolio, especially when things take place perhaps, in this case, in the Middle East.

A lot of investors trying to figure out, OK, what does this mean for my portfolio? Where do I need to be taking stock or looking across the scenario to make sure I'm well positioned? You know, how can someone aptly do that?

TIFFANY ALICHE: Well, I'd have to see. One of the things, we know that we can't control what happens externally, but certainly you control what happens internally. So to understand that geopolitical tensions can often increase market volatility because investors can feel uncertain and they can feel at risk. And so understanding that like escalations and conflict can help with sharp fluctuations that you want to be mindful of. That these might not last forever, but you might see them. So kind of like get yourself prepared for them.

Anticipate that there's going to be a flight to safety. So during periods of heightened tensions like this, investors seek safe-haven assets. You're going to see a lot of people, Brad, talk about gold, government bonds, specific currencies maybe like the Swiss Franc, Japanese yen, right? So this flight to safety is really typical for anytime there's any sort of volatility, but especially in the stock market.

So you're also going to see people with this pressure of wanting to like release some of their more riskier assets like stocks. So this actually might be a good time to pick some things up if this is a good underlying company, or it might be a time to like reevaluate does this make sense, depending on where that company is located.

Investor sentiment, in general, when there's a lot of tension worldwide, tends to be a little pessimistic. And when people are pessimistic, they tend to spend less, they tend to invest less, they tend to be more conservative. So being mindful of that. So you just want to be careful that wherever you are-- like where the most of your money is being invested, I want you to be mindful like where is that company located, how are they affected by what's happening in that part of the world, and should you adjust.

And lastly, there's going to be policy responses. So governments, central banks, these organizations are going to respond to these geopolitical tensions with policies that are going to help to stabilize markets ideally, mitigate economic risk. So you want to be mindful of that. So keep your eye at Yahoo Finance because this is where you're going to--

BRAD SMITH: 100%. Tiffany, we got to leave things there on the day. Tiffany Aliche, who is a personal finance educator also known as the Budgetnista. Thanks so much for taking the time, Tiffany.

TIFFANY ALICHE: Thank you.