Even if you’re completely new to investing, I’ll bet you instinctively believe that timing matters. While that’s true, it’s not nearly as important as you might think. In fact, an overemphasis on timing can reduce your chances of success as an investor or even prevent you from getting started in the first place.
You’ll see what I mean – and how to avoid this – as we explore the common question, “is now a good time to invest?” and discuss why I call it a syndrome.
“Is now a good time to invest?” syndrome, explained
The question “is now a good time to invest?” hints at misconceptions the inquirer likely has about the nature of investing.
Specifically, it suggests they believe the goal is to get into a stock before it rises and jump out before it falls. Their question isn’t so much, “is now a good time to invest?” but rather, “is the price going up from here?”
Of course, professional traders time the market like this regularly. Beginners, however, often attempt this without asking whether it’s the right strategy for their goals or even being aware that other strategies exist.
It’s a very easy mistake to make if your initial impressions of investing came from watching The Big Short or hearing a friend talk about how they turned $1,000 into $10,000 on a single well-timed trade.
There’s much more to investing than timing the market, though. In the next section, I’ll give you four steps for escaping this syndrome and achieving more reliable, lasting success as an investor.
4 steps to overcome “is now a good time to invest?” syndrome
This wouldn’t be a Rinkydoo Finance article if I didn’t remind you that everyone’s financial situation is unique. While my tips are always conservative, you shouldn’t do anything before speaking to an advisor one-on-one.
Note: This post contains Amazon affiliate links. I earn a small commission whenever you buy something through one of these links, which helps me keep ads on the site to a minimum.
Step 1: Prepare to invest for the long haul
The first step in overcoming “is now a good time to invest?” syndrome is to accept that most successful individual investors get rich over the course of several decades, not weeks or months. This is why responsible personal investing is typically discussed in the context of long-term goals like retirement or buying a house in 15 years.
For more context, take a look at the chart below, which displays the S&P 500’s performance since 1971. The S&P 500 is an index containing 500 of America’s biggest publicly-traded companies. When you hear newscasters talk broadly about “the stock market,” they’re almost always referring to this.
As you can see, the market has historically climbed upward over the long haul. If you look at the year 2000, however, you’ll see that things took a dip and didn’t get back to previous highs until sometime in 2007. Then, of course, the market took another hit in 2007 and didn’t regain those highs until sometime in 2013, at which point it kept zooming upwards.
There was also a dip in early 2020 thanks to the pandemic but that didn’t last very long. As of writing, we’re back to record highs.
One takeaway here is that you would’ve made great money if you bought the S&P 500 in 1999 and held it to the present day. That’s the beauty of investing for the long haul. You can experience not one, not two, but three economic catastrophes (the Dotcom Bubble, Great Recession, and the pandemic) and still come out ahead by just sitting patiently.
Another important takeaway is that the question, “is now a good time to invest?” would have been less relevant than you might’ve assumed at any single point in the past two decades.
Even if you only invested at the worst possible times (the peaks), you would have emerged massively ahead. Ben Carlson at A Wealth of Common Sense did a fantastic writeup demonstrating this.
“But Brandon,” you might be thinking. “Obviously I would have made more if I bought on the dips.”
You absolutely would have. In the third step, I’ll show you how smart investors benefit from downward price action with a very simple strategy. No short-term trading needed!
A note on short-term trading
If you’ve seen the light on long-term investing, you can jump ahead to the next step. Inevitably, though, a few people reading this will still decide to play Warren Buffett.
That’s definitely your prerogative. However, my advice would be to conduct very thorough fundamental research before trading stocks this way.
The correct strategy is complicated and time-consuming. People who can pull it off consistently have secretive, mind-boggling formulas and get paid millions to manage money professionally, which should give you an idea of how difficult it is.
Step 2: Choose the right investments (and don’t overcomplicate it)
Often, when people ask, “is now a good time to invest?” they’re subconsciously expressing trepidation towards putting their money into an individual stock like Tesla or whatever else has been generating hype.
This approach is substantially more complicated than investing needs to be.
You see, picking individual stocks correctly on a consistent basis is difficult even for professionals with access to brilliant research teams that crunch data at lightning speed. That’s why active fund managers have consistently trailed indexes like the S&P 500, as I discussed in my post on ETFs vs. mutual funds.
You can take advantage of this by assembling a diversified, index-based portfolio. Doing so greatly reduces the power any individual stock has over your finances. By extension, it also eliminates the need to follow every headline associated with an individual company.
While individual firms go bankrupt all the time, the chance of an entire industry or national economy vanishing is much lower.
Let’s take another look at the S&P 500 to demonstrate this. The index has existed since 1957 as a representation of America’s most successful companies. As you can see in this visual history of the S&P 500, many firms have fallen out of the index in the decades since. The overall benchmark, however, has grown steadily.
Experts like Warren Buffett expect this will continue, which is why the Oracle of Omaha suggests most people stick with an S&P 500 index fund rather than picking individual stocks.
After all, it’s always the right time to invest in an asset you believe will be worth more in 50 years than it is today. It’s much easier to make that case for something broad like America’s economy than a single company like Tesla.
Step 3: Use dollar-cost averaging
Dollar-cost averaging is a very simple investment strategy that further negates the question of whether it’s the right time to invest.
Rather than trying to guess whether an investment is headed up or down before dumping all of your cash in, you can just invest smaller chunks at a time. I like to budget for this by allocating a percentage of each paycheck to my investment portfolio. I invest that portion every two weeks, regardless of what’s happening in the market.
If I invest money this week and the market subsequently takes a plunge, I don’t care. I’ll invest more on the dip when I get paid again in two weeks. The average price I paid for my investment will then decrease, which is the “magic” (read: math) of dollar-cost averaging.
Here’s an example.
Say I buy 100 shares of Investment A this week at $10 per unit. Over the course of the next two weeks, the share price falls to $5. If I were to buy another 100 shares at that price, my average cost per unit would drop to $7.50.
At that point, I wouldn’t think of my investment in terms of “oh I bought at $10 and now it’s at $5.” Rather, I’d think of it in terms of having bought at $7.50. Of course, the longer the stock’s price stays deflated, the more I can take advantage of this. Another purchase of 100 shares at $5 would lower my average cost to $6.66.
As long as I still believe my asset of choice will grow over my long investment timeline, I never need to ask myself, “is now a good time to invest?” because I can just keep buying shares at my chosen interval.
You don’t need a lot of money for dollar-cost averaging, either. Even if all you can spare is $10 a week, you can get started. Check out this post to learn about some very simple low-cost investments.
Step 4: Accept the inevitable downturns
As simple as the previous three steps sound, it will all fall apart fairly quickly if you don’t accept that your portfolio will take a hit at some point.
You’re inevitably going to run into situations that make you think “man if I sold up there and bought back in lower here, I’d have been so rich right now!” Yes, you would have. But there’s no way in hell you would’ve been able to predict that movement and act on it flawlessly, no matter how obvious it seems in hindsight.
Most importantly, you don’t need to pull those maneuvers to be successful as an investor.
As the famous saying goes, “time in the market beats market timing.” Get your money in the right assets consistently and hold on for the long haul. That’s how ordinary people have historically generated tremendous wealth in the stock market.
Do you want to know how ordinary people have historically lost tremendous wealth in the stock market? They’ve tried to outsmart it only to completely misjudge the peaks and bottoms. They end up buying high and selling low.
It’s a tale as old as the markets themselves. And while I’m sure you’re unique in many other ways, the odds are not in your favor here.
“This time is different” syndrome: A comorbidity
One of the biggest roadblocks to overcoming “is now a good time to invest?” syndrome is the lingering thought that current market conditions are unlike anything humanity has ever seen before. If you truly believe this, you’ll have a hard time maintaining faith and investing in your assets of choice for the long haul.
Now, I’m no Nostradamus. I have no idea what happens next. I have read extensively about economic history, however, and possess a much higher level of confidence in sustained growth as a result.
To be clear, I do believe we will see radical changes in our lifetimes. That’s nothing new, though. Capitalism in America by Alan Greenspan takes a very extensive look at changes over the past several centuries.
Global powers have collapsed. Civil conflicts, pandemics, recessions, and two World Wars have been fought. Injustices like slavery and segregation have been abolished.
Adversity has been constant – but so has progress. Humanity has generated many trillions of dollars in value through all of that.
That said, I’m no idealist when it comes to the current state of capitalism. I know it’s still built on many injustices and that the ultra-rich are increasingly receiving the lion’s share of profits.
The fact remains, however, that investing and claiming a portion of the wealth being generated is the only way the middle class will ever get ahead under capitalism’s current rules. Wage stagnation pretty much ensures that.
Personally, I have no problem reconciling that view with the understanding that the market will likely have grown and evolved substantially 50 years from now.
Further, I don’t believe supporting the market’s growth is exclusive to supporting its evolution towards increased fairness and equality.
Invest – and vote.
When is it actually not a good time to invest?
Throughout this article, I’ve briefly touched on scenarios in which it doesn’t make to invest. Let’s look at them (along with a few others) in a bit more detail here. As you’ll recall, these situations have less to do with market conditions and more to do with your financial goals.
When you’ll need the money soon
This is the big one. If your reason for asking “is now a good time to invest?” is that you fear losing the money you’ll need for something important soon, the answer is no.
Ideally, you want to leave your money in the market for as long as possible. The number I’m personally trying to stick to is 20 years or more since that’s worked out well historically.
Don’t invest money you need for a downpayment on a house in six months or something like that. The market is too unpredictable over such a short time horizon.
When you have no emergency savings
If you have no money to fall back on in case of an emergency, investing is a gamble. If things go wrong, you may end up having to sell your investments at the worst possible time to keep food on the table.
Experts generally recommend keeping enough cash to cover 3-6 months of expenses in an account you can access quickly.
When you don’t understand investing
There’s no shame in simply not being ready to invest, particularly if you don’t know what you’re doing. You don’t need to know everything. You just need to know more than what you picked up from watching Leonardo DiCaprio ask someone to sell him a pen.
This article is a great place to start. In it, I begin with the very basics and tell you how the most common investments work.
When you’re drowning in high-interest debt
When you have substantial high-interest debt, paying it off is the greatest investment you could possibly make. Think about it. Any money you put towards that debt immediately generates a return equal to your interest rate. With average credit card rates at 14.58%, that’s unbeatable.
Market conditions are always favorable to investing. Whether or not you should, however, depends on, well, you.
Years of market data have shown that the individual investors who get ahead are those who play the long game, choose assets wisely, and stay consistent.
I hope this article has done a good job of communicating that and giving you a solid starting point. Good luck out there!