“The best time to plant a tree was 20 years ago. The second best time is now.” goes the Chinese Proverb. You get the tree into the ground, and it starts growing. It’s the same with investing. The best time to invest was maybe 20 years ago or 50 years ago, but even 10 years ago would have been a good time. Maybe yesterday at 1:00 PM was a perfect time. How do we know if right now is a good time to invest?
When should you put your money into the market? Right now, stocks are around an all-time high. Because of this, you might be wondering if you should start investing right now or if you should wait for a market downturn before you start putting your money into the market. How does one time the market?
When trying to time the market, people are really trying to beat the market. Why settle for a 10% average annual rate of return when you can get 20%, right? This is one reason people invest in individual stocks. Some do very well at this, but most average investors do not. It’s like Vegas for the average investor. Some win but most lose.
Waiting for a Downturn
An economic recession is coming. There is no doubt about it. An economic boom is always followed by an economic recession. This is the standard business cycle. It might happen tomorrow, or it might happen in another 10 years. There are always “experts” out there who are saying a recession is imminent. Even if you wait for an economic downturn before you start investing your money, how do you know when the stock market will reach the bottom?
Timing the Market
You time the market by getting your money into it. Whether the news is preaching doom and gloom, or the market is on fire, the best time to be investing is when your debt is paid off and you have your emergency fund in place. Don’t think you can predict when the market will bottom out or reach new highs.
When you invest a portion of your income on a regular basis, it doesn’t matter if the markets are going up or down because every time you buy you are forming an average cost. When you stop buying or you sell your portfolio to get out of the market, you no longer are averaging your basis. Some people get lucky and buy at the perfect time when the market bottoms. Most people do not do this. Some people are experts and have done very well, but they have the financial knowledge and tools needed in order to beat the market.
The bottom line is that it is possible to beat the market, but it’s not probable. For all practical purposes, you and I cannot beat the market. Some of you could do ok, but most will not. The best thing for us to do is to get out of debt, save an emergency fund, and invest a portion of our income on a regular basis for many years. If you carry high-interest debt, just by paying this off you can beat the market! Why not do that?
Invest your money in a low-cost index fund and keep it invested. If you do this, you can almost match the market. This is how you time the market as far as I’m concerned. Don’t wait for the exact, perfect time to invest so that you can time the market. If you don’t plant the tree, it will not grow.