This post is for you. Yes, you, who sent me that e-mail yesterday asking me whether it would be a good timing to start investing in the stock market right now.
I understood from your mail that you have not started to invest anything in the stock market. All savings are in FD and you are – figuratively spoken – sitting on the fence waiting to deploy your savings into the “risky stock market” or maybe not.
I believe this is a common scenario for many (most of them unfortunately being also non-readers of financial blogs; but that is challenge on a totally different level). Thus, I decided to share my thoughts on your query in a post:
- To beat inflation and to grow your nest egg sustainably the chosen asset class has to deliver a long-term return above inflation rate. Fixed Deposits certainly don’t. Nor does cash. You can’t afford to give the stock market a miss.
- One of the dirty little secrets of investing is that which asset class you invest in — say, stocks vs. bonds vs. commodities — matters much more than the particular stock you choose. It’s well documented in modern finance that your decision about asset allocation accounts for over 90% of your investment returns.
- Successful investing is about managing your own psychology. Get prepared for volatility. Get prepared for losses. Accept these as a given. In investing, what is comfortable is rarely profitable.
- Because of 3. it could be favorable to have a healthy dose of skepticism in your own abilities, your strengths and weaknesses, and then devise a simple strategy so that you can sleep at night.
- Investing does not have to be difficult. Don’t believe those so-called experts who make it sound so complicated and try to make you feel you can’t do it without their expensive help. You can. The principles of investing – regular savings, compound interest, diversification, rebalancing, time horizons – were all worked out long ago. They still apply.
- You should avoid difficult decisions. By limiting yourself to investing in the most simple and straightforward investment ideas, you are much more likely to be successful. Like setting up a regular savings plan into a few broad-based low cost ETFs in and outside of your home market. Voila, Investing Automated. Then just stick with it and ignore short term movements and forecasts.
- All you have to do is keep your head on straight and not screw it up. Stay steady and base your investing decisions on the trend-lines vs. headlines. Be patient. That’s the only skill investing requires these days.
- Successful investing is found at the intersection of being respectful of the past, indifferent to the present, optimistic about the future and skeptical of salespeople.
- Learn more about your innate psychological biases which will/might/could adversely affect your finances. If you know what they are, your chances to dodge them are higher.
So, back to your question whether it would be good timing to start investing in the stock market right now.
I have no idea.
But I get the vague idea (aka I am fully convinced) that not investing in the stock market at all will make it almost impossible to “out save” the inflation rate.
By investing regularly, the odds are very high you’ll have increasing levels of financial independence such that you can live your days freely as you choose.
It’s your choice.
And one more thing, make your choice in the morning when you are “fully charged”. Numerous studies have shown: The later in a day we make decisions the faster we make them and the riskier they become.
All the very best for your un-biased decision(s).
Don’t wait. The time will never be just right. – Napoleon Hill
When your values are clear to you, making decisions becomes easier. – Roy Disney, Disney executive