Stephen: If you’re thinking about investing money right now while the market is down, then you’re going to want to watch the rest of this video. I’m your host Stephen Rischall, along with my co-host, David Jacobs, and we’re here on the Smart Money Show helping you get smart with your money.
Welcome back to another episode of The Smart Money Show, today we are going to be talking about something really important. We’ve been hearing a lot from our clients about this, asking if now is a good time to be investing your money.
Obviously the market has been beaten up quite a bit, and it can be scary for some to decide to invest right now, but I mean David, we’ve always heard that old adage “Buy Low, Sell High”. We know that most people don’t do that, it’s actually really difficult to do, and this is a great example of when it’s difficult to do.
Let me ask you then, what are some of the base criteria you should be looking at just to determine if you are even in a position that you should be investing more of your money right now.
David: Well, like always, it comes down to each person’s circumstances first and foremost. If you even have the cash to invest right now, that’s a very good thing. Hopefully you’ve been listening to us in the past and you have three to six months of cash reserves on the sidelines, especially in this current environment, where a lot of people are finding themselves out of work.
It comes down to whether you have a solid income stream and whether that cash is available to be invested for the long run. Because this is something that we haven’t seen in many years, a Bear Market of this severity in this short period of time.
Stephen: Right, and another thing that plays a really big, key role in all of this is your time horizon. You will need to think about how long you are investing this money for and what’s your goal.
If this is money that you are saving for a home purchase, and you’re going to be doing this within the next six-months to a year, then you probably shouldn’t be doing this or you should be investing a lot more conservatively.
If it’s a longer-term goal, like a wealth accumulation goal, or retirement. If you’re investing for at least the next three to five years, you can feel a little more confident about that.
David: Definitely, I mean we usually tell people money invested in stocks, you shouldn’t have to touch for at least five years. Right now with the market down between 20% and 30% it seems like a relatively good entry point.
Of course, not knowing what’s going to happen the next 5-days, 5-weeks, or 5-months. But we’re pretty confident that 5-years from now, the stock market is going to be much higher. So you have to keep that long-term perspective.
Stephen: That brings us to another thing that’s really important with any investment decision, really anything we’re deciding to do with our money, which is how comfortable are you with risk.
No matter what we do with our money there is risk involved. Even putting our money in the bank, you have the risk of losing spending power to inflation, especially with interest rates so low.
A big part of this puzzle is figuring out how much risk you’re comfortable with. You need to know how much of a downfall you can stomach in the short run so you don’t ultimately resent this really good long-term decision.
David: I’m going to say this is the first time in my career, with a Bear Market this severe, where I’ve had more phone calls than not where clients are interested in actually getting more aggressive.
I’m not sure what that means, because usually the average investor is wrong, or we’re just really good advisers and have been training our clients well, but you definitely have to have a strong stomach and be very unemotional when it comes to getting into the market.
This could be a great opportunity, but if you’re worried about what happens next month or this summer, then it may not be right for you to do at this point.
Stephen: I think that’s really great advice, that it’s not necessarily for everybody. Everyone’s situation is unique.
Here’s the last question that I think we really need to answer on this topic. So let’s say you’ve checked off all those boxes, right. You’ve got good cash reserves, you feel good about your income situation and your expenses. Your time horizon is a bit longer and you’re comfortable stomaching the risk. The next thing is, how do you actually invest the money?
What do you think David? Should be doing this in a lump sum, one time, or should we do this over a period of time, dollar cost averaging?
David: Like with so many things, the answer is, it depends. But I think first and foremost it comes down to what percentage of your net worth are we investing.
If you’ve got a million-dollar account and we’re investing $10,000 which is 1% of it, I would say let’s just invest all of it right now and not miss this opportunity
If you just inherited a million-dollars in cash, and we’re investing it all right now, I’d say we should probably invest this conservative money right away, whether it’s bonds, or CD’s, etc. The stock portion I’d probably be investing in different tranches, maybe 25% right now, 25% if the market falls a little bit further, and dollar cost average into the market.
That’s basically the plan we’ve been putting together for each client, based on their specific circumstances.
Stephen: Bottom line, it’s time not timing that helps you be successful with your investment over the long-term. You really don’t want to resent your long-term investment decision in the short-term, so you need to be able to stomach any short-term volatility and risk when you do place this money. And make sure you make a decision that’s specific to your situation.
So look, if you have questions about your financial situation, about your Investments, about your financial plan. Give us a call, we want to help you do anything we can to make smart decisions with your money.