November 15, 2013

The Best Time to Invest

Credit: Stuart Miles
One of the most common questions I get in my line of work is something to the effect of “When should I begin investing?” or “When should I invest this particular portion of money?” Many brokers and financial advisors would talk to you about their ultra short-term market expectations or about trying to time the market (investing right before the market goes up a lot), but you won’t get any of that hypothetical schmoozing from me. A dictator’s unforeseen actions, a politician’s ill-conceived comment, or a shocking corporate scandal can throw even the best short-term market forecast out the window, so more often than not, I reply to someone asking me about the ideal time to invest with a very simple answer: “Probably now.”

“Now” is not a cop out. “Now” is not due to lack of knowledge or experience on my part. “Now” is not because the sooner you invest, the sooner I can talk with you about investment allocations and options. “Now” is about statistics, probability, and history. (Please click on the link and watch the video created by Time Magazine showing how $1 invested in the U.S. market has grown from 1927-2012 as well as what was in the headlines of Time.)

From a long-term investment return point of view, I think it’s safe to say that the last 85 years have been pretty awesome, but that’s not to say things haven’t been volatile. What if I told you that the S&P 500 has either been up more than 20% (which is a lot) or down (you lost money) for 18 of the last 32 calendar years, meaning returns have been between 0% and 19% (moderate growth) in only 14 of the last 32 calendar years? Well the market has been, so in order to be in a position to possibly enjoy some future, compounded long-term investment returns (like the ones you just saw if you're a good person and watched the video), I’d argue that you need to go ahead and pursue a prudently diversified long-term investment strategy and agree to stay on the market roller coaster. I just don’t think “guaranteed” annual returns of any substance are possible.

Another statistic worth mentioning is that, according to J.P. Morgan’s September 30, 2013 Guide to the Markets, the S&P 500 has had an average intra-calendar year drop of 14.7% every year since 1980. This means that the stock market has been down an average of 14.7% at some point during the calendar year despite its strong overall returns! I know of no other statistic that more clearly emphasizes the importance of a strong and patient stomach for market volatility. I also believe that in order for investors to have a stomach for market volatility, they need to have enough cash on hand, an understanding of their long-term financial strategy, and confidence in their financial advisor.

I’ve thrown a video and a couple of statistics at you that you may have found a little surprising and encouraging, but I’m not sure I’ve yet made a solid case for why investing now is likely your best course of action. You should consider investing now because over a long enough time frame the stock market has always gone up, and if you’re a betting person, the market has gone up more than it has gone down. Please understand that I am not saying you will have a better long-term investment return if you invest today versus tomorrow. What I am saying is the odds are in your favor!

If the current risk of market volatility is holding you back from investing, please know that there will always be market uncertainty no matter how long you wait to invest. There is a lot of recent and not-so-recent history to support investing now. In the battle of current market uncertainty versus market history, I personally choose history, but if you’re still not sold on this, I’d be happy to share some more of my thoughts with you and offer some techniques that can help you finally put some of your cash to work over time.


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