When Should You invest?
With so many of us taking vacations to the beach this summer, I’m hoping my next statement will start hitting home. Yes, I will continue to say it as long as I can speak.
The stock market moves in waves.
As you sit on the sand, watch the waves form in the distance and follow them as they crash along the shore. Then you can understand how the stock market works.
We study economics to learn how and why the market should move. Natural sciences teach us how and why the ocean’s waves should move. Both economic waves and oceanic waves have peaks and troughs, with varying heights and lengths. Unfortunately, we cannot definitively time these waves, we can only ride them.
Before going out, a surfer may check the weather report to get an idea of the surfing conditions. Before we invest, we also look at reports informing us on economic conditions. However, where the investor and surfer differ is that the surfer understands a very important point. They must go into the water before anything can happen.
Some days will be better than others, but we will have a hard time reaching our goals if we just sit back and watch the waves. The answer is simple. When should you invest? Whenever you can!
The more important question than WHEN should we invest is WHY do we need to invest?
This can be a very difficult question to answer because the reason will be different for everyone. The short answer is that we invest because it is one of the best ways for us to pursue our reasonable goals.
Yes, investing has risks, but that’s why you invest when you can and not before. By that I mean your current financial situation must be comfortable enough where you won’t be ruined if you lost the investment. Investing should never be a last ditch effort to strike it rich before losing your home. You should also avoid investing money that you need quickly because the investment needs time to work.
Unfortunately, some people view the stock market as a casino or a lottery. Powerball tickets are only two dollars because your chances of winning are extremely low. Investing in the stock market will take more money and planning, but the odds of a positive result are much higher.
The lottery is a great example of how we measure risk and reward.
We will gladly sacrifice two dollars for the chance of winning millions. After all, two dollars is about half as much as a gallon of gas in 2022, right? If the lottery ticket was $1,000, but the odds of winning remained the same, would you still buy a ticket?
At $1,000 a ticket, a rational person would not risk losing such an amount of money that could go toward rent, a car payment, or food. At least I hope they wouldn’t take such risks. In our example, the risk of loss is so much higher ($2 is much less than $1,000), while the reward (a very small chance of winning the lottery) remains the same.
When we look at investing properly and not as a get rich quick scheme, we find that risk and reward start becoming more balanced and making more sense. A high risk investment may have a greater chance of loss, but usually comes with a chance of higher reward. A low risk investment may have less chance of loss, but usually includes a chance of lower return. Combining different levels of risk into a well-balanced portfolio gives us a better chance of reaching our reasonable goals.
When we invest, our money has the opportunity to work for us, not for others.
Yes, your money is safe in a bank because of the FDIC, but it’s not working for you. It rarely earns enough interest to keep up with inflation, especially not in 2022. Let’s not forget your money helps banks make loans.
Hopefully, we’ll never again have a run on banks like the Great Depression. Can you imagine a scene like in It’s a Wonderful Life when everyone tries to close their accounts? George Bailey, played by Jimmy Stewart, pleads with his customers to keep their money with his savings and loan business.
It’s a sad, but also great scene. I love that whole movie! I do wish mean old Mr. Potter wasn’t in a wheelchair though. He makes me look bad! (Just kidding.)
The question you need to ask yourself is do you want your money to help you pursue your dreams or someone else’s? Having a chance to reach our reasonable goals is why we invest.
The last question to consider as we decide when to invest is HOW should we invest?
There are many ways for us to invest our money. There is real estate, such as farmland or homes. There are collectables, such as art, comic books, or baseball cards. With the right story, a good salesman can make anything a limited edition collectable. In my opinion, a good example of this would be NFT’s. I just don’t see the value of those.
Of course, there are the stocks, bonds, mutual funds, ETF’s, etc. that normally make up investment portfolios. These are in your retirement accounts and what you see on the daily market report section of the news. It’s also what I do, so I am a little biased in my belief that it is the best way to invest our money. Let me explain why.
First, let’s look at how buying and selling works.
All products have a value. The seller sets a price that a rational buyer is willing to pay. The buyer gives the seller money in exchange for the product. Simple enough, right?
Now let’s say you have a rare collectable pocket watch. You know it’s appraised value and are ready to sell. You try selling the watch on your own, but nobody is willing to pay your asking price.
They want to buy it at a lower price, so they can profit by selling the watch for the listed value. Of course, they experience the same problem when they try to sell the watch. Even someone in the jewelry business cannot buy it for the listed value. They need to be able to make a profit in order to keep their business open.
Doesn’t that sound like a headache? All of that work for a small item. Imagine trying to sell land or a house. Yes, real estate agents and attorneys exist to handle all of the work for you, but it still takes time to find a willing buyer and execute the deal.
On the other hand, investing in the stock market can be much easier.
There are so many choices in the stock market now where you can invest in just about anything, such as real estate or precious metals. The difference is that you don’t have to work as hard.
For example, you may own some apartment buildings through a Real Estate Investment Trust (REIT), but someone else does all of the work. You don’t have to find renters, deal with service calls, or even mow the grass! No, you probably won’t be able to see the property, but does that really matter?
When you’re ready to sell your stake, you just contact your friendly neighborhood financial planner (that would be me). Then I’ll put in the trade order and your money is back in your account ready to help you pursue your dreams. It may take a couple of days, but isn’t that much easier?
Conclusion. When should you invest?
Growing up I had a pet donkey named Zack. He was a great friend and followed us around like a dog, which is ironic because he hated dogs.
Fun fact time! Mexican burros, like Zack, have many jobs, but one is to protect goats and lambs from predators. It was in Zack’s breeding to protect his flock against wolves, so naturally, he was not a fan of dogs.
There’s an old story about a donkey where one was put between two buckets a food. Apparently, the donkey starved to death because it couldn’t decide of which bucket to eat. I hope my Zack wouldn’t be that stupid, but it brings up a good point.
When we sit on the sidelines waiting for the perfect time to invest, we are being like the donkey. Indecision costs us many opportunities as well as the time we need to build a strong portfolio. There will always be excuses, but we only have one life with the time needed to let your money work for you.
Once I asked my pastor what was the best version of the Bible. There are many choices and my church uses the English Standard Version in sermons. My pastor told me the best version was the one you’re actually reading.
My answer for when we should invest is similar. We have to start planning for our future. We have to stop looking for the perfect time or the perfect investment. We just need to invest!
For some reason we look at investments different from any other purchase, but they’re really very similar.
Do we only buy clothes or food on certain days? There will always be sales, so don’t try that excuse on me. Trust me, my mom won’t buy anything that isn’t on sale!
We “purchase” investments, so they can grow and become a resource for our future. A farmer plants seeds in the hope that it will become a crop, which can be sold to feed the world and positively impact everyone along the supply chain. Just like the farmer, we have to invest with a little bit of faith. The farmer has no guarantee of a successful crop, but they invest by planting anyway.
The push back I normally receive when I discuss investing becomes a debate about the world ending. This is funny to me because the last thing we should consider during the apocalypse is our net worth. Jesus isn’t going to care about your portfolio.
Money is a tool and nothing more. If the world ended tomorrow, the paper on which a dollar is made could be used to start a fire. That’s about it. The true currency at the end of the world would be food, shelter, electricity, and survival skills. Making sure you know Jesus and He knows you is the best preparation for the end of the world.
Yes, investing is scary and there are so many other ways to spend your money. However, we must find the balance between enjoying today and preparing for tomorrow. We may only live twenty years or we may live to be eighty. We don’t know, but we must plan for both!
Email me and let’s get to work!