Is now a good time to invest?
“Caution can help us avoid mistakes, but it can also keep us from great accomplishments.”
– Howard Marks
By Shawn Perkins | Investing
2 minute read
If you’re an investor or would be investor and you’re interested in taking the temperature on the markets right now, you’re probably not getting the most positive signals.
Recessions have struck the UK, Japan, and Germany and there’s growing concern of global spread (Barron’s). Inflation continues to stick around like gum on the bottom of your shoe (CNBC). And lastly, worries about the incredible growth of the Magnificent 7 stocks has people wondering when the music will stop and curtain drops (CNBC).
Meanwhile, the S&P 500 index closed at a record high last week.
If you haven’t invested yet, you may feel inclined to sit on the sidelines and “wait it out”. Or maybe you’re already invested and feel that now would be a good time to move to cash because there’s “a lot of uncertainty in the world.” That’s a famous line among investors and financial advisors alike.
The reality is none of this matters.
None of it.
Now don’t get me wrong, I’m not saying that I’m not interested in what’s happening in the world and I’m not ignorant to the emotional impact that comes from market volatility as a result. If I knew for certain what was going to happen, it would be irrational to not act accordingly.
But what really matters is understanding why your money is invested in the first place. Strategy and purpose for your investments is the key because no one knows anything for certain when it comes to the economy and investing.
Uncertainty cannot be eliminated; it can only be tamed.
Instead of worrying about when and how to invest, ask yourself this question, Am I going to need this money or a portion of it within the next 3 to 5 years? If the answer is yes, then you should strongly consider keeping a sizeable amount in cash or short-term bonds to avoid the loss of value.
If the answer is no, then that is your greenlight to think about taking additional risk with those funds for a potentially higher return. Everyone is going to be different at this step depending on their tolerance for risk and preferences. Personally, I prefer stock and equity funds that pay and grow their dividends.
Here’s the point. Because we have acknowledged that uncertainty exists and have planned accordingly, the money that we’ll need to accomplish our short-term goals is not subject to the unpredictable and irrational swings in the stock market. As a result, you’re less likely to make rash, and likely incorrect, decisions influenced by short term events.
Some would say that this is settling for less. I couldn’t disagree more. I think it’s playing the odds in your favor. Having this defensive approach will allow you to accomplish your goals and stay invested for the long-term.
You can’t measure the return on that.
Nor your quality of sleep.