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I got this question recently, and I feel like you might have it too:
“I want to invest, but it feels like all the news I hear about the economy is bad. Is it still a good idea to invest or should I wait?”
Oof. I feel this. You finally get to a place where you have the money to invest, but it feels like your odds of making money are as good as finding love on Married At First Sight.
We have two things to talk about here: numbers and feelings.
(Quick note: this is not personalized financial advice and I’m not a financial advisor. Do what works for you!)
Let’s start with the numbers.
You can’t time the market
So you have your emergency fund saved and your high-interest debt paid off and you’re ready to invest. Now what?
You might have heard the advice to “buy low and sell high,” which means to buy stocks when the price is low and sell them when it’s high. But uh… how do you know what’s low OR high without a crystal ball??? It’s no surprise that even the professionals can’t do it consistently.
Fortunately, time IN the market is more important than timING the market. This basically means that when you plan to keep your money invested for a long time, you get the benefit of compound interest (more on that later), and the market trends affect you less.
Historically, the odds of making money in U.S. markets are:
- 50% over one-day periods
- 68% over one-year periods
- 88% over 10-year periods
- 100% (so far) over 20-year periods
So the longer you invest, the more likely you are to make money. And while investing still involves risk, there’s no 20-year period where you would have lost money.
This should be a relief!! It’s like when you contemplate the divorce rate and wonder if the only true love you’ll have in life is your dog, but then remember all those Married At First Sight people are messing with the average so maybe your chances aren’t so bad.
Don’t miss out on compound interest
Compound interest is another way of saying that you make money on the money you’ve earned.
So if you invest $1,000 and get a 7% return one year, you have $1,070.
If you make 7% again the following year, you make money on the interest of $1,070–even though you still only put in your original $1,000 investment.
Those numbers might not seem huge, but they add up over time. Take a look at the graph here:
But you only get the benefit of time when you start investing now!
Now let’s talk feelings.
Navigating your emotions as an investor
Your numbers are great! They should be reassuring! But I know you’re probably still worried!
Understandable. 😅
Even knowing the importance of time in a long-term strategy, you might still be anxious. I get it. Here are a couple things to think about:
- If you’re younger, market trends don’t just feel like “trends,” they’re all you’ve ever known. You haven’t had the time to see things fluctuate, which means it can feel risky to invest at all.
- You don’t “lose” money until you sell. As long as you stay invested, you haven’t lost yet. This is why I say that investing is a long game—you protect yourself by keeping your money invested for a long period of time.
- As some people say, when the economy is down, it’s like stocks are “on sale.” I don’t love that this feels like a finance equivalent of a “Live, Laugh, Love” pillow, but, I do appreciate the idea. Buying during the low times allows you to benefit the most during the high times.
We also know that regardless of what every Finance Expert™ (aka your cousin Chuck) will tell you, no one can predict how things are going to go.
You can’t predict the future
I love this from finance author Morgan Hausel:
“The majority of what’s happening at any given moment in the global economy can be tied back to a handful of past events that were nearly impossible to predict.”
You can’t predict the future, and you don’t need to.
Instead of looking for the hottest stock, you need to find ways to effectively manage your emotions around investing. That might mean limiting the number of times you look at your portfolio or unsubscribing from r/wallstreetbets. Whatever you need to do!
