The bear market could be a good thing for new investors—here's why (2024)

After much talk about the stock market sliding into bear market territory, we saw it officially happen when stocks closed Monday with the 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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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. TheVanguardS&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.

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.

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