Is it time to invest in the markets now? This is probably one of the most frequently asked questions by investors.
I would love to know the answer, but I don’t know. In our home, we are not trying to time the market either. Market timekeepers must successfully enter and exit the market. We have always believed that the race was slow and steady. Our approach is to calculate the average cost in dollars over the years, when we slowly enter the market in predefined quantities at the same time each month and exit the market in the same way by withdrawing money in predefined quantities . You don’t have to buy and keep forever and we don’t. This strategy allows logic to drive our investment strategy and not emotion.
In terms of investment, we had a guiding principle: boredom is beautiful. We do not want wild swings in our portfolio and we look to companies with solid balance sheets, reasonable debt, industry leaders who not only pay a dividend but also increase their dividend regularly.
For us, diversification is important. We do not invest in a single company, sector, currency or country. We balance our portfolio to ensure that our asset allocation is aligned with our moderate risk tolerance. This is where we allocate our money to cash, bonds and stocks.
Like you, we have worked hard to save and invest and like you, we are watching the value deteriorate. Are we worried in turbulent times – you bet we are.
We got married in 1995 and many market events have made us wonder if we should throw in the towel: the 1997 world stock market crash caused by the Asian economic crisis in 1997, a technology bubble that burst in 2000 , September 11th. , 2001, and then in 2008, when one of the largest US financial institutions was allowed to fail, to the current COVID-19 health crisis to name a few.
We did not sell our positions, despite our concerns, and we spoke with our advisor throughout the process. For us, that comes back to the sleep factor: can we sleep at night given the volatility of the market?
Back to the original question: is it time to invest?
I think there is always time to invest if you have at least a five-year horizon and a reasonable tolerance for risk. These are volatile times and some may argue that markets have gone too far too quickly from their lows. For others, this is the perfect time to enter and buy good quality stocks that you are willing to hold for years.
It all depends on the type of investor you are. Decide if you are looking for a return “on” your investment or a return “on” your investment and this will shed some light on whether it is time to invest for you. Take the time to understand who you are as an investor, there will always be another market challenge and the last thing you want is to let your emotions dictate your investment decisions.
Have a plan, stick to your plan, and adjust your plan as circumstances change.
However, over the years – and through many ups and downs in the market – we get back to basics.
Leaving cash inactive: unused cash in your savings account pays almost nothing, and when you factor in taxes and inflation, you probably lose money in this rate environment low interest. Develop an investment strategy today. Start investing your money in the market if you have at least a five-year horizon. Procrastination will destroy your wealth plan.
Fall in love with your assets: never fall in love with your investments. You have to have emotional intelligence to sell underperformers. There is an opportunity cost (finding a better investment) by staying too long with a loser.
Take away financial responsibility from someone else: don’t do it. No one will care more about your financial future than you do. Take control of your financial situation. Set goals that you are passionate about. Make a plan, then stick to it enough to stick to it.
Do not try to time the market: it is impossible to really know which sector, market or investment will outperform at any given time. Buy good quality investments and be a long term investor against a short term speculator.
Understand the impact of capitalization, taxes and inflation: the power of capitalization – earning income in addition to income – should never be overlooked. In fact, it is your secret financial weapon. Unnecessary taxes can eat away at your returns and inflation too – even in a low inflation environment.
Build on your memory: automate your path to financial success. Establish pre-authorized payment plans so money can come straight from your account and be applied directly to debt, retirement savings or your investment portfolio. Automation takes time and the temptation out of the equation.
Not knowing what you own: For the record, I like mutual funds, but I also like to know their main titles and how the funds compare to their peers. I am for constant returns in time, because I believe that a slow and regular strategy will win the race.
Do too much: no one wants you to save until it hurts or you spend like there is no tomorrow – find a balance.
Ignore what you are worth: compile your net worth statement every year. Confront your brutal financial facts. Unless you can clearly see how much you owe and how much you own, you will never make the changes necessary to enjoy financial freedom. Look for ways to free up money and start investing.
Leave money for tomorrow: if you are retired, you can spend. Enjoy your life because if you don’t, your heirs will.