Don't worry about market volatility, says Suze Orman: Here's why 'you should look forward' to it

"You don’t want a market that goes straight up, up, up, up, up," the financial expert says.

Suze Orman speaking at the eMerge Americas conference in Miami on June 12, 2017.
David A. Grogan | CNBC

Plenty of investing pros are weighing in on what the stock market will look like in 2021, and no matter where they see indexes ending up, nearly all of them expect one thing: volatility. Most regular investors agree. In a recent survey from Allianz Life, 72% of American investors believe that markets will continue to be turbulent next year.

If the thought of further short-term jumpiness in your portfolio makes you nervous, maybe it's time to change your thinking, your investment strategy, or both, says financial expert Suze Orman, bestselling author of "Women & Money" and host of the "Women & Money" podcast. If you're a long-term investor, "I think you should look forward to volatility," she says. "You don't want a market that goes straight up, up, up, up, up."

Read on for Orman's rules for investing, particularly amid volatile markets.

Volatility can be a long-term investor's friend

If you fund your retirement account and other long-term goals using a strategy known as dollar-cost averaging — investing a set amount in your account at regular intervals — then volatility is the investor's best friend, Orman says.

"If I were you, and you were putting money in every single month, you would want the markets to go down — not necessarily up," she says. "Because when the markets go down, the price of the shares that you're buying decrease, the more shares you buy, and in the long run, the more money you make."

Suze Orman: Why volatility can be good for investors

Video by Helen Zhao

Why is Orman so sure the markets will eventually rebound after pullbacks? Because historically, that's what they have done.

And even if markets bounce around in 2021, long-term investors needn't fret, she says. "I think, just personally speaking,  you're going to see a fabulous market from January till about April. Then it will probably go up and down again," she says. "Invest every single month – in the long run you'll be great as long as you have at least five years or longer until you need this money."

Investing for retirement using a Roth account, either a Roth IRA or a workplace retirement account with a Roth designation, can help make the most of dollar-cost averaging, Orman says. That's because investments in such accounts, which are funded with money you've already paid taxes on, grow tax-free and the resulting funds can be withdrawn tax-free in retirement.

"Be in the Roth version of the employer-sponsored retirement plan that they offer you," she says. "The Roth 401(k), the Roth 403(b), the Roth TSP. Do the Roth, people."

For shorter-term goals, weigh saving versus investing

Money you need for a shorter-term goal such as, say, buying a house, requires a different game plan, Orman says. "Money that you need in less than a three-year period of time is not money that belongs in the stock market," she says. "If you look back, historically speaking, it takes on average 3.1 years for the market to go from its high to its low, back to its high again. A lot of times it takes five years for that to happen."

Though you won't earn much of a return these days stashing your cash in a low-risk vehicle such as a savings or money market account, you won't take on risk of losing that money, either, Orman says. "The last thing you want is for you to finally have the money you're going to put as a down payment on your house … and now the market's down 38%," she says.

Don't try to profit from short-term trades

If you've paid attention to markets this year, you know that volatility cuts both ways. The economic and societal impacts of the Covid-19 pandemic have sent stocks in some companies reeling, while other firms have flourished. You may be tempted, then, to try make money on stocks you see as short-term winners. Orman would advise against that.

"You want to get yourself situated where you're not trading — not buying Teladoc two months ago and then you're selling it. Or you bought Zoom and then you sold it," she says. "If it's a good stock today, it's a good stock five years from now."

Suze Orman on how to use a second stimulus check

Video by Helen Zhao

Orman recognizes the difficulty that comes with "timing the market." Even though trading in and out of stocks is cheaper and easier than ever, it still requires you to get the timing right twice: when you buy and when you sell.

And in her thinking about holding quality stocks for the long-term, she echoes another financial guru: Warren Buffett, who once said of himself and his colleagues at Berkshire Hathaway, "Our favorite holding period is forever."

An investor who earns a 50% gain on a stock may be tempted to take their chips off the table. But if it's a quality firm, you'll eventually kick yourself for that decision, she warns. "You realize if you just kept it, it's not 50%. It's not 100%. Not 1,000%. It's 3,000% and on and on and on," she says. "A good quality stock is a stock that you should keep, and you should keep, and you should keep. And you should not trade."

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