When Should I Be Investing in The Markets?
Ahh, the age-old question is upon us: When is the right time to be investing in the markets?
Nowadays, this question comes up frequently, and, quite frankly, I get it. The markets are at all-time highs after being decimated last year during the height of the pandemic. Businesses are still closed, and although things are trending up, it certainly doesn’t “feel” like it should be the all-time highs in the stock market.
All these factors lead to a very logical question in investors’ minds. Should they take slugs of money and pour it into what they believe is an artificial and not sustainable market? The answer may be relatively simple, but if I gave it now, I’d end the blog, which would have cheated you out of a lot of good content.
When should I be investing in the markets?
To restate the logical concern people have today, what if they put their money in now and the markets go down another 30%? Then what? Additionally, our brains can’t make sense of why these markets have rebounded so quickly. However, this is the right question to be asked. Before addressing thoughts and answers, let’s take a moment to look at the anti-concern, as I like to analyze an issue from all angles.
What if the markets are fairly priced and, since they are forward-looking, are pricing in an expansion, due to the lack of spending when the economy opens up? Additionally, what if today, whatever day you’re reading this, is literally the lowest the stock market will ever be? (Heavy stuff there right?) The answer may not be simple and straightforward. Shall I give you more heavy thinking for your Tuesday? Why not, it’ll be fun.
- What the heck is the stock market?
- At the risk of insulting all you lovely readers, I think it’s paramount to revisit what we’re actually investing in when we buy into the stock markets. If you think about it, we’re buying into the largest and greatest companies in the world. Sadly, they really don’t give a rat’s behind about us. Rather, they care about turning a profit. Do you think Amazon, Google, or Netflix cares if we lost our job or struggle to get by? These companies are solely devoted to the price of their stocks continually rising, regardless of what’s going on economically or politically. So, remember what you’re actually buying.
- Investing is a continuum, not an absolute.
- What I mean is that investing doesn’t end. We aren’t trying to figure out when the all-time high will be, so we can cash out. Whether you’re 20 or 80, the stock market will chug along long after we are gone. Additionally, likely you’ll need to be investing in the stock market for the entirety of your life. Therefore, it’s important to reframe our thinking to realize that investing is riding a wave that doesn’t end.
- Stats never lie!
- Let’s have some fun with numbers shall we. As the saying goes, stats never lie. Since 1950, the stock market is up approximately 53.8% of the time. I know not a compelling argument thus far, but I’ll keep going. Since 1929, if we invested in the S&P 500 and held our investment for one month, we’d be up roughly 60% of the time. The argument is getting a little more compelling, isn’t it? But wait there’s more. What if we held our investment for a year in the S&P 500? Well, now we’re talking about a positive return 75% of the time. The odds are looking a little more favorable, yes? Ok last one, what if we held our investment for 10 long years? If you invested at any point since 1929, and held your investment for 10 years, you’d be up a whopping 97% of the time. It’s hard to argue these figures (unless you’re my best mate, O-dog; he can argue anything).
- The chips are stacked in companies favor.
- In 2000, there were roughly 6.1 billion people on the planet. Today there’s 7.6 billion. In 1990, there were over 2 billion people on this planet living in extreme poverty. Today, there’s less than 500 million. All companies produce a product or provide a service to us, human beings or businesses. Simply put, the chips are stacked in their favor. Their market keeps growing and the amount of people in the market who can’t afford their goods keeps shrinking.
- What are your alternatives?
- The answer you’re all screaming for right now is, wait for a pull back and then invest, you dummy? Ok, I deserve the dummy comment, but, what if? What if the markets don’t pull back, what do you do? What if they actually do pull back because of another catastrophic event, and you’re to gun shy to pull the trigger? (Who me? Yes, you. Couldn’t be. Then, who? All of us actually.) Timing the market is very difficult and rarely done successfully. Would you rather bet on your ability to guess right, or the facts laid before you?
I’m sure you can see where my answer is trending. Not every situation is created equal, and they certainly deserve analysis and conversation with your financial planner. We don’t have to look back all that far to see what I did personally when faced with this question. You see, every year I get my year-end bonus at the end of December. I sit down with my financial planners, Kyle Hill and David Levy (two of the best in the biz). We discuss what to do with our distributions, etc. We decided I would put a nice chunk in my investment account.
So, what did I do? I ran to deposit my check, so I can turn around the next day and write it to my investment accounts, the same thing I’ve done every year. Some years I bought at lows, and some I bought at highs. The reality is I simply bought and let the momentum of the stock markets carry my investments higher. I took out emotion, fear, and everything else. I relied on facts and faith that this time is not different. It’s good news for me that this policy has led to consistent growth and more in my accounts than what I added.
Enough lambasting for one day. Just know the next time you ask yourself when the right time should be to invest some side cash, the answer is usually that you should have been doing so before you even asked the question!
Hope you are all staying safe and I wish everyone lots of wealth, health, and happiness.