MARKETS GOING LOWER?!
Every day I open TikTok (follow me before politicians ban it! 😉 ) and see questions asking if markets are going lower.
“Someone on CNBC said …” “Do you think we’ve hit bottom?” “When should I start investing?”
A lot of what I think is WRONG about FinTok is the popularity of predicting markets. You can’t predict markets. You can make a guess. You can use past information or use futures to try and forecast markets, but in a global economy, anything can change at the drop of a dime that can cause markets to swing drastically.
I am not in the business of making predictions. Why? Because if I’m right about making a guess (“markets are going up from here!!”) then everyone will proclaim that I am a genius. And if I’m wrong (“markets are going lower from here!!”), then everyone will call me an idiot. I don’t care about making predictions. I care about investing. But when is the right time?
As an investor, you have three options …
Option 1: Wait. Wait and strike at the absolute perfect moment. The bottom. But when is that? When exactly is the bottom? Maybe it’s already happened. Or maybe it’s in three months. But when it hits … will you know it’s the bottom or will you wait because you believe it’s going lower?
The Reality: You’ll likely miss your chance.
Option 2: You go ALL IN. 100% of your money set aside for investing will be deployed immediately. This is called Lump Sum Investing. You’re a long term investor. You don’t care what markets are doing because you plan on holding for a LONG time. Studies show lump sum is better than dollar cost averaging. Why? Because you’re putting all you have into your investments right now, giving you the most impact.
If you use Smart Asset’s calculator and you invest with $200,000 one time into an S&P500 Index Fund that returns 10.5% on average, after 30 years you’ll have 3.9 MILLION dollars. Put $555 into that same index fund once a month for 30 years and you’ll end up with only 1.4 million.
The Reality: Most people don’t have $200,000 to dump all at once. And if you’re a fan of dollar cost averaging, you might be able to snag some really good discounts in a bear market. Invest everything you have all at once then you might not have any money to benefit from discounts.
Option 3: You dollar cost average. Or, you do what I do: You buy on REALLY significant down days. Wake up and see the Dow Jones is down 800 points? Heyyyy! Might be a good time to deploy some of your money. A few months later, the Dow Jones drops 950 points? Well, hey. Another good time to deploy a little. Run in when everyone else is running out.
If your goal is to acquire 100 shares, you might buy in blocks of 25.
The Reality: You might end up only snagging 50 shares before markets rip and push higher. You can always buy when markets are going up. Nothing wrong with “buy high, sell higher,” but if that makes you uncomfortable, well … you might only have 50 shares before all is said and done. But it’s better to have some skin in the game than nothing.
