I work with clients and talk to people in many different stages of life. Regardless of these differences, people often ask some of the same questions. One of the most common is, “When is the right time to invest?” We all hear about stock market movements, and it is natural to wonder if the market is too high to invest in right now and whether we should wait to invest. Or, if it falls, is it going to continue falling? When is the right time? At those times, I wish I had a crystal ball, but I haven’t found one of those yet.
I think investors ask that question because of something called the illusion of control. The illusion of control is the tendency of people to believe they have control over something when, in fact, they don’t. Whether we like it or not, stock market movements are beyond our control. And, while investors know they cannot control the market, they also know they can control when they enter and exit the market. Therefore, we may feel like we can control our investments by deciding when to buy and sell. This is a temptation for many investors. However, whether you are a beginner investor wondering when you should start investing or an experienced investor wondering whether you could be doing better with a more hands-on approach, the reality is the same. The idea that you can control how well your investments do through timing is just that – an illusion.
No one can consistently time the market (no matter what they tell you) and therefore, there is no time like the present when it comes to investing. Some people end up procrastinating, thinking they can find just the right time to invest while in the meantime they are simply missing out on gains (and yes, losses) on their investment.
Warren Buffett once said, “You’re making a terrible mistake if you stay out of a game that you think is going to be very good over time because you think you can pick a better time to enter it.”
Once you have started investing, it is important to maintain a long-term perspective. If you invest and the market takes a downturn, stay the course, knowing that it will eventually recover. Indeed, according to an analysis on rolling period returns, since 1979, the returns on 20-year rolling periods ranged from 6.4% to 18%. This is in contrast to one-year rolling periods which ranged from -42% to 97%. This highlights the difference between long-term and short-term volatility, and the importance of the long-term perspective.
Warren Buffett also said, “I know what markets are going to do over a long period of time: They’re going to go up. But in terms of what’s going to happen in a day or a week or a month or a year even, I’ve never felt that I knew it and I’ve never felt that was important.”
It may be easier said than done, but keeping a long-term focus and tuning out short-term market movements is critical to being a successful investor. Ignore the ups and downs of the market and remain confident that your well-diversified portfolio will grow over time.
Another key is to invest regularly and consistently, a strategy referred to as dollar-cost averaging. If you invest, say, $100 every two weeks on payday, you will be investing over time at different price points each time. Over time, the high and low prices will be averaged out. The advantage of this approach is that you are consistently continuing to invest over time, which will help you feel less emotional than if you were trying to jump in and out of the market with large chunks of money.
The only caveat I would add to my advice is in the case that you are intentionally not invested for the long-term. Say, for example, you are saving for a down payment on a house or to buy a car. In that case, I would recommend that you invest your savings, but I would advise you to use more conservative investments such as money market funds or short-term bond funds. These funds provide shelter from volatility in the stock market and scheduled interest payments, which works well for short-term goals. The time to invest for short-term goals is still now, but based on the timeframe of the investment, the strategy may be different than if you were invested for the long-term.
When it comes to the stock market, timing is nothing, but time is everything. No one can consistently time the market and it is important to ignore the urge to do so. Instead, focus on what you can control, investing early and often. The longer you are invested, the more opportunity you have to grow your savings over the long-term. So, don’t wait. The right time to invest is now. FBN
By Glenn Leest
Glenn Leest is a local WT Wealth Management investment advisor, youth pastor, husband, father to three small children, bodybuilder and rollercoaster enthusiast (not necessarily in that order!). He has lived in Flagstaff for more than 15 years and has strong ties to both the community and local businesses. Leest’s professional priority is to help his clients make educated and timely decisions about their investment strategies, and he aspires to help his clients be the best stewards of their financial resources. This is the first in a series of three articles in which Leest will be addressing some important questions he has been asked in his experience as an investment professional. WT Wealth Management is located at 809 W. Riordan Road, Suite 206, Flagstaff, AZ 86001. For more information, call 928-225-2474 or email firstname.lastname@example.org.