When Is It A Good Time To Invest?
By Timothy Brown, MBA, CFA®, CFP®, RICP®, AIF®
One common question that is asked of financial advisors is about the timing of investments. People want to know if they should wait until the market is low, if they should save up a lump sum, or if they need to wait until conditions are perfectly favorable.
It’s a perfectly reasonable question, and this article is going to try to give some clarity on the nature of investing, and answer this age-old question.
The Crystal Ball Syndrome
Thanks in large part to Hollywood’s portrayal of the high-stakes stock exchange broker, almost everyone has heard the cliche that you need to buy low, and sell high. This especially applies when dealing with high-risk single-stock investments, but the sentiment is often inappropriately applied to investing as a whole. It stands to reason under this logic that if the economy is doing well and riding high, maybe you should wait until the market takes a dip so you can buy in during a lull.
There are a few problems with this mindset, though. First of all, there is absolutely no way of telling how high the market might go before a dip. Even many of the professionals who try to play the “buy low, sell high” game don’t make even moderate returns. Secondly, how in the world do you plan to determine when the market hits the bottom? While you are waiting for the market to bottom out, all of a sudden there is a shift in the news, and the market starts a dramatic climb and you start the process of waiting for the top again.
You might be better off asking your cat to predict the rise and fall of the market than a financial advisor. Unless you have a crystal ball to tell you the future, you will always be waiting for the right time.
Being hesitant to jump into investing when the market is high might betray a lack of education about the basic nature of market investing.
Imagine that the market is like a train. For quarter one it grows forward at 50%. The second quarter it hits a hill and slows to 12%. In the third quarter, it slows again to 2%. Finally, in the fourth quarter, it slips back on the rails a bit and goes backward -24%. When you add that year up, you have an average between the 4 quarters of 10% progress down the track.
The stock market is always in motion. Sometimes fast. Sometimes slow. Sometimes even backward. But if you take all of the movement, total it up, and figure out the average, you discover that over long distances of time, the market is making forward progress.
Let’s look at some actual historical values of the stock market.
In 1970, the S&P 500 closed at 92.15.
In 1980, the S&P 500 closed at 135.76.
In 1990, the S&P 500 closed at 330.22.
In 2000, the S&P 500 closed at 1,320.28.
In 2010, the S&P 500 closed at 1,257.64.
In 2020, the S&P 500 closed at 3,756.07.
The trick to the timing for investing is not to figure out if you are at a high or low spot in the economic picture, it’s to get on the train as soon as it is safe for you to start! The whole game is to put in and let it lie until you are ready to use it way down the road.
Are You Ready?
There are some factors to consider when deciding to take the plunge into long-term investing. You don’t want 100% of your capital tied up in case of a short-term financial crisis that might come up.
Your best bet is to sit down with a professional who can help you navigate your entry into the investment world. We at Brown Wealth Management, LLC have been helping people do just that for over 20 years.
If you are ready to begin your journey into investing, we would love the opportunity to work out a solid plan with you. Schedule a free introductory call today by reaching out to us at (952) 303-6715 or firstname.lastname@example.org.
Timothy Brown is the founder and president of Brown Wealth Management, an independent, full-service wealth management company that helps individuals and families prepare for all of life’s milestones and events. With more than 20 years of experience in the financial industry, Tim strives to help his clients live happier, more fulfilling lives with the confidence that they have been good stewards of their finances. Tim has a bachelor’s degree in finance and accounting from the University of Colorado and an MBA from the University of Minnesota’s Carlson School of Management. In addition, he holds a rare combination of credentials: Certified Financial Planner™(CFP®), Chartered Financial Analyst™ (CFA®), AIF® - Accredited Investment Fiduciary™ (AIF®), and Retirement Income Certified Professional® (RIPC®). Tim has been recognized for his hard work by receiving the Five Star Wealth Manager award in both the Mpls. St.Paul Magazine and Twin Cities business magazine since 2013.
When he’s not working, Tim enjoys spending time in Eden Prairie with his wife, Stacey, and their four children. You can often find him keeping busy by staying fit, pursuing a black belt in Tae Kwon Do with his three boys, assisting kids with Boy Scouts, and attempting to read two books per month. To learn more about Tim, connect with him on LinkedIn.