Today might be the best time to invest.
Why is that so hard to believe?
The threat of a recession, two wars in the headlines, rising interest rates, inflation, an upcoming presidential election…
I get it—it doesn’t seem like the “all-clear” signal has flashed.
But we know that we need to invest. Investing in assets is the only way to make our money grow consistently above inflation. And if there’s one sentiment that’s universally shared by all investors, it’s that they wished they invested earlier.
So, what do we do when it seems like a bad time to invest? Here are some tips to help you stay the course.
Tips to help you invest when it feels difficult
Don’t try to time the market…that rarely works
The easiest thing to do seems to wait until things better. But what exactly does that mean? What is our green light that tells us the coast is clear?
It’s human nature to protect what we’ve accumulated. But there’s no one who can consistently time the market. Why? You have to be right twice. First, you have to know when to get out. Second, you have to know when to get back in. The latter is harder.
The truth is there’s always a reason not to invest. But if history is any guide, it’s always a good time to invest.
Lengthen your time horizon
I’ve had a lot of people say they don’t want to invest because they don’t want to gamble.
Investing in stocks is the opposite of gambling. In investing, the longer you play the more likely you are to win. That’s because stocks have a long-term positive expected return. In gambling, the odds are stacked against you.
In any single day, it’s a coin flip whether stocks will be up or down. But the longer your time horizon, the more certain you can be of positive returns.
Don’t just play offense—play defense
Saying you don’t want to invest because you don’t trust stocks is like saying you don’t want to eat dinner at The Cheesecake Factory because you don’t like cheesecake (spoiler—they have more than 250 items on their 21-page menu).
There are so many things to invest in. Stocks are only one part of what should be a diversified portfolio. But we’re coming off an historically great decade for stocks that people have forgotten what diversification means.
If you want more consistent returns, playing defense is equally as important as playing offense. Your offensive players (stocks) are prone to years of losses. In these uncertain times it pays to have defensive players that can shine.
Keep fresh powder to deploy opportunistically
While I more of a fan of being 100% invested in a diversified portfolio, you can also keep some of your portfolio in cash or short-term bonds. This “dry powder” can be used opportunistically if the market does drop.
However, just like timing the market can be difficult, deploying your fresh powder can also be hard.
Stop looking at your account balance
Perhaps the worst thing you can do during rocky markets is “check on your accounts.” Research has shown that frequently checking your account can end up hurting your performance.
How? First, your stress increases. Remember the earlier chart? On a daily basis, market performance is a coin flip. If you look every day, you are likely to see more negative numbers.
Second, you end up making changes to your account. You feel like you “need to do something” to “stop the bleeding”. What happens is you interrupt your long-term plan.
Lastly, you end up investing more conservatively. This is because you shorten your time horizon. “Long term” becomes “daily”, and you mistake short-term volatility for the long-term risk of not accumulating enough to hit your goals.
Wrapping it up
Investing is simple but rarely easy. The mechanics of how to invest is not the biggest challenge. The hardest part is sticking with an investment plan when the short-term feels difficult.
The first rule of investing is to never interrupt it unnecessarily. If you want to capture long-term returns, you need to have your money invested as long as possible. If it seems difficult, use these tips to help you capture those returns.
