Two things are going on right now in the world/my life:
1) The market is erratic
2) A project of mine is completing soon and I want to invest a significant amount of money
The other day I was contemplating these two facts, and I came up with the ultimate investing question – what is the worst day to invest? The market is always going to swing back and forth, but is it possible to invest at exactly the wrong time?
A few qualifiers (there are always qualifiers) are necessary before we can answer this big question. “When I think of, speak of, and actually do invest, I do so into the broad markets. This means I don’t pick stocks. For me, there’s too much risk in being wrong. If your financial future rides on a just a few stocks, your financial future rides on the edge of a cliff. One false move, and your wealth can go tumbling down the precipice.” (courtesy of the Indy Star)
Secondly, in asking this question, I’m mainly asking, on what day will result in me losing money? Because that is the whole point of investing, to increase my money, not lose it.
The last qualifier is understanding the time horizon for your particular goal. For the money I’m about to invest, I don’t need it for another 20 years. If your particular goal is in 2 years, then your risk tolerance is significantly lower than mine. Knowing how much time you have will determine how much risk you can take.
“You can already see this shaping-up, can’t you? There aren’t bad days to buy; there are only bad days to sell. No matter when I would have invested in the market, I would have more money if I held the investment for twenty years. The S&P 500, a common measure of stock market performance, has been down on the year nine times since 1970. And in each of those nine instances, the index recovered to pre-fall levels, within five years. So if what I’m describing seems so easy, where does it always get screwed up? When a person sells. Whereas there hasn’t been a bad day to invest in the broader market, there have been terrible days to sell. Terrible days. When people freakout, they often sell when they shouldn’t.” (courtesy of the Indy Star)
An advisor buddy of mine once told me he has his clients write a letter to themselves going over their goals for the money they are investing. Then when things are rough, they are asked to re-read the letter. Your biggest obstacle to success in the market is yourself. Withdrawing your money at the wrong time can mean major losses. This is why time horizon is the most important concept in investing. If your goal is 20 years away, like mine, then you are less at risk.
“I’m now ready to answer my question. Well, as long as you have a reasonable time horizon (20 years), a measured approach (broader market investments), and a diversified strategy (multiple broader market investments). The worst day in the history of the stock market to invest is tomorrow. If you believe in the market, why wait? You only lose when you sell.” (courtesy of the Indy Star)
Read the rest of my Indy Star column here.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.