As you read through the news headlines today, going over all the shifts and turns in the world, both good and bad, you may have a hard time interpreting what that means for you and your investments. Is it a good time to invest? Will stock markets fall further? Are we going into a recession?
Here is 5 reasons why you should invest now:
1. Do it! Don’t procrastinate
Research shows that faced with decisions and uncertainty, we put off action. We do that even when the benefits from acting fast far outweigh the benefit of choosing one way or another. Investments are a prime example. It is surprisingly common for investors to spend so much time asking themselves what kind of portfolio is ideal, that they let their available funds sit idle for far too long earning no interest.
Historically, balanced and diversified portfolios have yielded positive returns over five years. So the odds are in your favour that if you invest sooner rather than later, you will make more money by the end of your investment timeline.
2. Filter out the know-it-alls
You might be unsettled by those acquaintances at dinner who always seem to be so confident in their forecasts and investments: “In the summer I moved my money out of China and into Europe; everyone knows this region is a bargain and China is too expensive … ” and so on.
Be skeptical. Even top fund managers have difficulty forecasting accurately. The daredevils make the headlines but the best often make money by being conservative. They know things can go either way. Warren Buffet takes moderate risks, and get things right more than wrong and repeats the process over over a lifetime with fanstastic results.
So if you have your doubts about where the markets and ecconomy are going, that’s just a sign you are a normal, sane, intelligent investor.
Dollar-cost-averaging is a decades-old technique for good investing. Even though it’s very simple, it’s even used by high-profile investors.
All you have to do is determine how much you want to put away each month, and then invest it over time. Don’t worry whether you think the market is high or low. Don’t worry about how awful the headlines are. Just invest.
By doing this, you mitigate the impact of temporary market moves on your overall portfolio. Think of this as diversification over time rather than just across investments. You will look back and see that some purchases were rather expensive, while others were a bargain. Overall, you will have bought at roughly average prices.
You will have benefited from the long-term expected returns of your portfolio, rather than having bet on hard-to-predict swings in prices.
4. Where to invest? Focus on the portfolio rather than specific names
It’s all too easy to get caught up in specific investments: “Is this the USA going to maintain its bull run of the last 5 years? Will people still be buying Tesla’s in five years time?
Choosing specific assets can be exciting. But doing so properly involves a lot of hard work. There is lots of competition, and specialists spend entire careers researching just a few countries, companies or sectors. Even if you have the expertise to match them, the time required is usually not worthwhile for personal investments.
Research shows that over time your financial returns will probably be explained more by the mix of asset classes (stocks, bonds, property and so on) you choose than the specific investments within each group.
So invest your time discussing with your financial advisor what mix of asset classes is right for you, given your financial plans and objectives. Then invest in diversified portfolios or funds within those classes. Avoid excessive worrying about specific names within each one. Long-term financial planning might not be as exciting as trying to make money trading, but it is often a better investment.
5. Talk to your financial advisor
Our first 4 tips boil down to “Act early, don’t worry too much about forecasts and invest over time in a balanced and diversified portfolio that fits your long-term financial plans”. It’s a mouthful. But it’s the most important message when it comes to financial planning.
Of course, you may still ask yourself “Okay, but as compared to history, is this or that market attractive or not?”. That should be a secondary concern for individual investors, but it’s a legitimate question.
There are in fact numerical indicators that a market is cheap or dear as compared to historical averages. For example, one can look at “yields” – the relation between the income generated by an asset and its price. And although specialist forecasts have some guesswork to them, they are also driven by objective factors: “Is the government spending more than it raises in taxes, or less?”, for example.
These data, forecasts and indicators must be taken in context. None alone provides a fool-proof sign that it’s time to invest. Even taken as a group, they often only make for broad-brush recommendations. Even then, different specialists might read things differently.
So if you would like a balanced view of market indicators and what various specialists are forecasting, and would like to discuss what that could mean for your portfolio, speak to a qualified and licensed finanncial advisor.