The Best Time to Invest
Is now a good time to invest in the market or should I be selling? Whether the stock markets are up or down, people always wonder if it’s a good time to buy or sell. I’ve had clients ask this question at every stage of the market and my answer is always the same, “We can’t accurately predict where the market is going to be tomorrow, so why try?” One thing that statistics have proven is that markets go up and markets go down, but they tend to go up over the long-term. Based on research from Morningstar Canada there has only been one five year period in Canada during the period 1950 to 2014 where the market was not profitable. The best course of action is to have a proven plan and stick with it. The plan is not simply to buy low and sell high, well not exactly, since we never know exactly when it’s high and when it’s low or if it’s at its lowest or highest levels.
Having a well thought out comprehensive financial plan in conjunction with a diversified, disciplined investment strategy is the best way to avoid anxiety over market changes. Knowing what you want your future to look like, and what it will take to get you there, removes much of the stress associated with market corrections. If there is a market decline and your investment balance is below what it should be, you can increase your savings. If the market is up and your investment balance is ahead of target, you can invest a little less. This would be similar to a strategy known as value-averaged investing. If, based on your financial plan, you have reached your investment targets already, you may not have much of your investment portfolio in the market anyway, so the market corrections may have little impact on your lifestyle and future plans. At the height of the 2008 financial crisis, when North American markets were down more than 40%, I had a good client call me in a panic and tell me they couldn’t sleep at night and wanted to move everything to cash. When they came in, we reviewed their portfolio and they were shocked that their portfolio was only down 3%, because most of their money was not in the market, but in bonds and other income producing investments. Their position at that time was based on the recommendations in their financial plan and investment strategy. When I asked about the statements and letters I had sent them, they replied that they were too afraid to open them after talking to friends and watching the news every day.
Contributing a predefined amount to your investment plan on a regular and continuous basis helps level out the ups and downs by buying into the market during the peaks and the troughs, thus averaging your costs. This is an investment strategy known as dollar-cost-averaging. Some people prefer this method as it does not require much involvement, other than the initial set up. Regardless of what your investment strategy is, it’s important to stay focused and disciplined throughout the market ups and downs.
The people with the least stress during times of market volatility are those who have engaged a team of professionals to assist them with managing their wealth. Similar to owning a business and hiring people with a variety of expertise to assist you with growing and managing your business, you can do the same with regard to growing your own personal or corporate wealth. Your wealth management team should consist of an Accountant to provide tax advice, a Portfolio Manager to manage the day to day investment decisions, a Financial Planner to design a plan to accomplish your goals and objectives, an Insurance Specialist to help mitigate the risks in your plan and a Lawyer to ensure you’ve protected yourself, your wealth and your family, in the event of death or inability to manage your own affairs. Once you’ve chosen the right team and have the right strategy in place, you can spend your time worrying about where you’re going to vacation, rather than how the market is performing.