One of the most foundational questions an individual investor must answer when they have some extra cash is: “is now a good time to invest?” We believe the answer to that question is always “right now!” Let us explain…
First, we’re assuming that when you invest, you’ll invest with purpose. You know exactly what you’re investing towards and therefore an appropriate asset allocation has been determined. Also, when we say “right now”, we’re not exclusively talking about the stock market. It may be that you’ve sold you home and have some cash that you don’t need immediately; “right now” may mean moving that cash to money market investments or short-term bonds…what to invest in is dependent upon your purpose for the investment.
Secondly, when investing in the stock market, the odds of positive returns are in your favor. In The Uncommon Average, we’ve shown how the S&P 500 has been positive in three out of every four years. The odds of positive returns only improve as the time horizons increase. It is undisputed that the stock market is unpredictable and, historically speaking, about 75% of years have positive returns, it is pretty clear that waiting for what you believe to be a ‘good buying opportunity’ can be a dangerous game.
Consider the other alternative to investing when you have the funds available. You’ve received a bonus and want to invest it for retirement. Perhaps the stock market is at all-time highs, or maybe your read the latest Doom and Gloom Report (don’t get us started…) and you decided to leave the bonus in your checking account until you feel more comfortable with where the market is at. That was January. Now it’s April and you’ve received a sizeable tax refund that you’d also like to invest, but the stock market is even higher than in January so you’ve missed out on that growth and your checking account has even more funds that are really meant for retirement…a retirement that could last over 30 years. Do you see the problem? How long will you continue to hold the cash?
Why would an investor chance the above scenario when the odds are not in their favor? Perhaps they believe that they can predict the unpredictable stock market this time, if so, best of luck to them. We also believe that there is a fear of being wrong or “looking dumb” for investing right before the stock market declines. To counter this, we strive to instill contentment under all economic conditions. When this contentment is achieved, the stock market movements are viewed in a greater context which gives freedom to focus on what you can control and disconnects your worth (or your decisions on when to invest) from your net worth.
Our Investment Management page goes into further detail on investing on the foundation of knowing the purpose and the three principles that we believe offer the best chance of a successful investment experience.
Investing involves risk including loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although these funds typically seek to preserve the value of your investment, it is possible to lose money by investing in money market funds.