Have you been contemplating starting an investment portfolio, but sitting on the sidelines? If there was ever an ideal time to toss your indecisions aside and trust your gut, it is at this very moment.
Every once in a blue moon, the stars align just perfectly and the investment gods smile on investors inviting them to take advantage of unique situations. I am suggesting that now may be such a time, and if the gods aren’t smiling just yet, there is certainly a twinkle in their eyes. While there is no way to perfectly time the bottom of the market—which would signify the perfect time to go all-in into the market, you don’t need a crystal ball to see that we are hovering around those market lows. Yes, it is possible that this depreciated market may continue for another 12 months or so, but there is no guarantee; and since timing the market is impossible, now is an excellent time to begin deploying some money into the market. In fact, in the investing community, there is a common saying: it’s not about timing the market, it’s about time in the market.
One of my all-time favorite quotes comes from Theodore Roosevelt: “In any moment of decision, the best thing you can do is the right thing. The worst thing you can do is nothing.” I love this quote (for anyone brave enough to visit my website, you’ll find it at the top of my page) because it highlights the importance of not allowing yourself to be paralyzed by indecision, as so many of us fall prey to regularly.
Here are the top seven reasons why now is the best time to start an investment portfolio. Full disclosure, in general, most of the following are always a good argument for investing, but with the current market, these reasons make starting an investment portfolio almost a no-brainer. So, let’s get to it…
- Markets at record lows. The strategy for investing is to buy low and sell high. It is not buy when the market is high and hope that it continues to go higher. The financial markets infamously collapsed in 2008. Fast forward 11 years later, and many investors and would-be investors had stories about where their portfolios could have been had they invested in 2008-2009. Investors dreamed of the fortune that they could have amassed during this time of market prosperity. Now is the time to learn from past mistakes.
- Great time to start saving for retirement. “When is the best time to start saving for retirement?” is a typical question asked of financial professionals. The answer is uniformly the same because of its simplicity—“now”. The earlier you start, the better off you will be over the longer term. This is a simple fact, but yet in still, so many people are seemingly content to delay this crucial step to adequately prepare for their futures. The old adage: “Youth is wasted on the young” comes to mind. So many people, especially younger professionals, think that they will be able to work forever. But unfortunately that is normally not the case. Also keep in mind, there is more than one type of ‘retirement’. Forced retirement can come in the form of a debilitating injury or illness; or it can be at the insistence of an employer. Retirement shouldn’t be something that people dread, it should be something to look forward to. In my professional experience, it’s the people who don’t have enough money set aside for retirement that dread it the most. Those who have adequately prepared for this inevitable day are able to do so on their own terms and with a zeal for the excitement this stage of their lives will provide. Again, most younger people are not thinking about this sort of thing, but it would make your future self much happier if you were to start investing now rather than pushing it until later. Unfortunately, most people who do not take heed to this advice will not realize the error in their ways until they find themselves having to try to “play catch-up”.
- New parents. This is an excellent opportunity to start a freedom fund for your little ones. If you’re a new or expecting parent (there are a lot of COVID babies coming now), this is an EXCELLENT time to begin saving for that new bundle of joy. If you’re not exactly new to being a parent, but still haven’t started setting anything aside for your little one(s), now is better than ever to begin. I know the term “freedom fund” gets tossed around often enough already. In the past, this was typically called ‘educational fee planning’. However, with fewer people electing to go to university, calling it a freedom fund is more appropriate. People are coming up with lucrative business deals right out of high school or a year or two into their post-secondary education. So, even if your money doesn’t go to funding a university education, it could serve as seed money for the next Steve Jobs.
- Targeted saving for an upcoming purchase. Do you have a future expense that you know is coming? Perhaps you know that you would like to be in the position to buy a home or planning for a memorable wedding or an even more memorable honeymoon or vacation. With prices increasing the way that they have, it requires some serious financial planning to be able to afford certain luxuries without going into serious debt. The average age of first-time homebuyers has been increasing at an alarming rate, which can be attributed directly to the rising housing prices. Currently the average age in the US is 36 years old. It was 33 years old just a year ago.
- Listen to Warren Buffet. Warren Buffet famously said, “be fearful when everyone else is greedy, and be greedy when everyone else is being fearful.” Not only is the “Oracle of Omaha”, as Buffet is affectionately referred to, one of the most successful investors of all time, he is also one of the richest men in the world—listed at number 5 on the Forbes list. In other words, you can learn a thing or two from following Mr. Buffet’s advice. With markets at record lows, and everyone being so fearful, now is the time for being “greedy”.
- Dollar cost averaging. If you ask financial professionals for their favorite investment term, inevitably the vast majority will respond with “dollar cost averaging”. Dollar cost averaging works especially well in fluctuating markets. The main goal with regular savings plans in the early years is to accumulate as many shares/units as possible. The more shares/units that you have at the end of your savings cycle, the better off you will be because you’ll be selling these to convert them to cash. During this accumulation period, if you’re able to get more shares/units as prices fluctuate, you are dollar cost averaging. Congratulations. As long as the price of the shares go up over the long term life of the investment period, you’re a very happy (and savvy) investor.
- Power of compound interest. If the answer to the previous question wasn’t “dollar cost averaging”, I’ll bet dollars to doughnuts that the response was “compound interest”. What is compound interest? The simplest definition is that it is interest on interest. Though the definition is simple enough, its impact and exponential growth is far more complex. Albert Einstein is famously attributed with saying that compound interest is the most powerful force in the universe, calling it the eighth wonder of the world. I don’t know if it is true he actually said any of that, but it does demonstrate the power of it. Compound interest doesn’t really amount to much in the early years, but over time the growth is exponential. Let me repeat: exponential. It is a beneficial tool for those who have longer investment time horizons. In fact, an online search on the subject will inevitably give you the classic example of two investors—one who starts early with a very modest regular contribution; compared with a person who waits to start their investment journey and is able to contribute at a much higher level, but for a shorter period. Spoiler alert: the difference is STAGGERING. It is literally the difference between having a couple of hundred thousand at retirement or a couple of million.
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