Is now a good time to invest?
With the markets at all-time highs, many feel that a correction is long due, and they may be right. What if the market crashes immediately after I invest, seems to be a valid concern!
If prudent investing is all about buying low and selling high; then, is now a good time to invest? This is perhaps a lingering question in the minds of many investors.
On the other hand, the current bull run has been raging for the last 11 years. Even a global pandemic could only pause it for a few months. The markets fell briefly in March 2020 and recovered only in 6 months.
Thanks to the extensive vaccination drive, mammoth stimulus cheques, and spectacular corporate earnings, global markets have recovered swiftly. They have, in fact, surpassed the pre-pandemic levels and are still looking strong.
Many investors have been waiting on the sidelines for long, brooding over the lost opportunity.
So, how long can you wait?
No one can predict where the markets are headed in the short term, and anyone who claims to know is either guessing or lying!
A correction may happen tomorrow, or the market could crash next week, or maybe in after two to three years, no one can really say. And if that crash happens in 2 or three years, you will miss out on one of the best bull runs ever!
If you are skeptical about investing with so much positive news, you may be more suspicious when the market crashes, still waiting for the bottom to enter. Or worse, maybe you have spent your savings on something else, or your financial situation could be different then!
But what if the bull run continues for another 4 - 5 years? People are speculating about a market crash from 2016, and now we are in 2021, and the markets are still strong ...
The point is that we all know that what goes up has to come down someday, but we have no clue when.
We also know that what goes down will come back, and there is enough historical proof to support this theory.
So why wait?
Timing vs time in the market
It is well-known that timing the market can be a challenge even for professional investors, so why waste the opportunity waiting for the right time to enter the market? Instead, you may want to focus on time in the market. Which is in your control, depending on how far and big your goal is.
Above all, keep in mind that your investment decisions should be based on your financial needs and risk appetite and not on market timing.
There are enough tools available to manage risks efficiently. Goal-based investing, Robust asset allocation, Dollar cost Averaging, Periodic review and rebalancing are some examples. With the help of an expert financial advisor, you can manage risk efficiently and grow wealth to achieve your financial goals.
But what if you invest now and get it wrong, totally? What if none of these strategies work for you!
Let's look at Sam's example. He started investing in US tech stocks(nasdaq index) at age 35, with $40,000 just before the dot-com crash in 1999. He managed to invest additional investments every time just before a crash or a correction in $100k in 2007, $60k in 2010 and $100k in 2017.
While his timing was worst, and he never reviewed or rebalanced his portfolio. Today Sam is 57 years old and was laid off last year during the pandemic.
Due to his age and rapid technology disruption, he finds it challenging to get a suitable job, so he is considering retirement.
What do you think are his prospects?
Do you think Sam can retire with the current value of his $300K investment?
Was he better of keeping his savings in a bank instead of investing?
The following chart will explain better;
You can see from this chart that if Sam had invested at the worst possible time and just before every correction, his investment value would have quadrupled in 23 years to reach $ $1,254,665.91(418%). Instead, if he had kept his money in a bank, it would have just got $343,749.13(115%).
Alternatively, If Sam had started with a 40K investment and added $12K every year from 2000 to 2021, as a systematic investment, his investment would have grown to $1,454,550(478%).
So, now what do you want to do?
You can still be skeptical and wait for the right time, or you can be Sam!
You can also be Smarter than Sam. Hire a financial advisor, Cease the market opportunity by use efficient risk mitigation tools, and regularly investing your savings to grow wealth and achieve your financial goals.
The choice is yours!
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