The original title of this edition of TGIF 2 Minutes was “Remember Brexit?” The reason that seemed appropriate is because recently and often during client reviews, conversations with potential new clients and from friends I am hearing the question, “Is NOW a good time to invest?” The slew of events that occurred in late 2020 and so far in 2021 have led both new and experienced investors to question the timing of investing new monies today.
Looking at the chart below*, there are events since 1970 and as recent as Brexit in 2016 that posed immense uncertainty and likely the same question. In fact, the chart illustrates the TEN YEARS from 2000-2010 dubbed “the lost decade”.
There are numerous directions to go with the answer to whether or not NOW is a good time to invest. (And to clarify, the meaning of the phrase “to invest” is to invest designated savings primarily in the stock market and secondarily in bonds and cash instruments.)
- At most basic, the word “NOW” equates to timing. Timing is based on luck – both good luck and bad luck. That also means timing is risky – both good risky and bad risky. Deciding NOT to invest today can be just as risky as deciding to invest. (Please ask me why; hint: inflation.)
- To further simplify the answer to the question, consider the statement: When you HAVE money, invest (or buy); when you NEED money, sell.
- Another angle is the concept of capitalism, which despite its flaws, has benefited savers and investors in the US and around the world for decades – with much worry and volatility included along the way! For the foreseeable future, capitalism will reign in the US.
Finally, the fact that emotions will ALWAYS smartly cause investors (who are human) to question their actions. Brilliant economists and Nobel Prize in Economics winners including Richard Thaler and Eugene Fama have written and spoken extensively about emotions negatively interfering with real-time investing – and other – decisions. These economists note that a strategy, planned well in advance, can minimize emotions and timing risk in investing.