Suze Orman: How 'fortunes are made' in the stock market — and how you can seize the opportunity

"Every month, no matter what, just keep buying what you think is great."

Suze Orman.
Photo by Marc Royce

There's likely been no shortage of new millionaires minted over the last 12 months. Stock indexes are touching all-time highs with the S&P 500 jumping 55% over the past year, and savvy investors in riskier fare, such as cryptocurrency and so-called "meme" stocks, have enjoyed massive returns.

For most people, though, building wealth doesn't come from riding red-hot bull markets but from investing wisely during bears, says Suze Orman, bestselling author of "The Money Class" and host of the "Women & Money" podcast. Keep plunking money into the market consistently as prices fall: "The more it goes down, the more shares you buy," she says. "Eventually it will turn around, and when it does, you'll have a lot of shares and then start making a lot of money."

"That's how fortunes are made," Orman says.

Unlike many market-watchers, Orman thinks the market is overdue for a downturn soon. Here's how she says you can capitalize.

1. Know that downturns come, and don't panic

The first thing to know about stock market pullbacks is that they happen a lot. From 2000 to 2019, a stock market decline of at least 10% (known as a correction) occurred in 11 out of the 20 years, with an average dip of 15%, according to data from Charles Schwab.

You needn't be a market historian to remember the most recent one: the Covid-fueled crash in early 2020 that saw the S&P 500 decline by nearly 34% in just over a month before logging a gain of more than 81% to today's levels.

Suze Orman: Why volatility can be good for investors

Video by Helen Zhao

Investors who aren't mentally prepared for a sharp decline in stock prices are more prone to panic and sell their investments. That's a huge mistake for investors, and one that Orman fears young investors could make in the next drawdown — especially ones who only began investing during the market's most recent upswing.

"These Gen-Zers think they're smart. They'll go from $100 to $85 and think, 'That's OK, I'll buy more,'" she says. "Then it will go from $85 to $70, and they'll go, 'Uh-oh.' Then when it's at $50, you watch how fast they sell."

Orman doesn't think this is a problem unique to the next generation: "There's nothing new in investing. It's just another group of people who need to learn the lesson the hard way," she says. "And the Gen Zers haven't learned it yet."

2. Invest consistently and buy dips

And that lesson may be coming soon. Today's sky-high stock prices and rampant investor enthusiasm for riskier investments feels eerily familiar to Orman: "I'm not as optimistic about the stock market as everyone else is on any level," she says. "This reminds me of the year 2000 so much I can't even stand it."

Back then, investors drove valuations of technology stocks into a bubble that eventually burst, sending the S&P 500 cascading by 49% between March of 2000 and early October 2002. The market wouldn't hit a new all-time high until 2007.

For young investors, a big dip would be welcome, Orman says: "You wish and pray and hope that it happens."

When it does happen, she says, younger investors should continue to focus on investing set amounts of money at regular intervals — a strategy known as dollar-cost averaging. The strategy has a two-fold positive affect on your portfolio. Not only do you avoid the temptation to time the stock market (a near impossibility for just about any investor), but you also guarantee that you "buy low and sell high" by buying more shares when they're cheap and fewer when they're expensive.

"Every month, no matter what, just keep buying what you think is great," Orman says. "Keep doing it, and hope that it goes down further and further." Such a strategy may feel painful at the time, but you'll come out way ahead in the long run, she adds.

3. Consider taking some profits now

None of that is to say that you should hold onto everything in your portfolio right now while the market is up and outlooks are rosy. Orman has urged her followers, many of them close to retirement and therefore dependent on investment income, to consider taking their profits. "If you hold stocks in a retirement account, what are we talking about here? Another 5%? 10%? Look how much it's already gone up," she says.

"If you have that money in a retirement account, think about liquidating it," she says for those older workers.

Suze Orman explains emergency savings

Video by Stephen Parkhurst

Orman wouldn't recommend the same for a younger investor who has decades to recoup any losses from a stock market decline. But even aggressive investors should assess their portfolio to see if any investments could use a trim, she says.

"Even in my own account, if I have tremendous gains, like I did with MicroStrategy stock, I'm taking them," she says. "I'm not playing them. Investments that have had tremendous runs of 400%, 500% — I'm taking them off the board."

And if Orman is wrong and the market remains strong? "We can always buy back in, and we haven't really lost anything."

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