As you begin to start investing or even deliberate over when your next investment may be, you may wonder when the ideal time is to invest. Is there actually an optimal time, should you wait it out or should you dive in. So, when should you invest? Well, we have attempted to answer some of these thoughts and show some possible ways about when the right time is to invest.
When is the right time to invest?
· When you are ready
You’re probably very eager to jump right into your investing journey. However, you will want to make sure you are ready to invest.
Firstly, you will want to ensure you are in the situation to be able to invest. You will want to ensure your financial situation allows you to invest. It is important you have the money available. If you do have the money, you will probably want to ensure that you don’t require that cash in the short term. Ensuring you are in a financial situation which allows you the option to invest, then you are on your way!
Next you will want to actually know what you are doing. You should take as much time to understand the basics of investing. Read as much as you can, never stop learning and consider it to be an ongoing process. Knowing what you are doing will give you a greater understanding of your investments.
Speaking of which, you will want to ensure you know where your money is going. Knowing what you are investing money into could lead to greater success, as the aim is to minimise the risk, whilst maximising your returns. Before diving in headfirst, make sure it is when you are ready.
Assuming you are ready to begin investing, there is no reason not to start as soon as possible. In fact, it is always suggested that the best time to invest is now. The sooner you invest, the sooner your money is being put to work, thus allowing your investments to grow. Investing now means you are able to maximise your returns long term as you have more time invested. The longer you take, the less time you are giving your money to generate those potential returns.
Investing in the market:
As you begin to enter into the stock market, you may come across some areas which may have you unsure on when to invest. You may believe that you should wait to try and time the market in order to maximise your returns. Additionally, you may have considered if it is worth investing when the market is low or high, and if there really is a correct time to invest. We have discussed these points below to give you a general idea on when to invest.
· Timing the market
As long as investing has been around, there has been one guarantee within the stock markets. That is the fact that there are no guarantees. The stock market is well and truly unpredictable.
Within the stock market, the only time you may be able to foresee changes may come with economic downturn. And even then, it is impossible to know if a recession will lead to stocks performing better or worse. Then, if it really is possible to forecast a recession, knowing when the recovery will come becomes an extreme guessing game. The point is, there really is no way to tell how the market will perform. Even in times of economic uncertainty, the market has always rallied.
For example, using the S&P 500 as the benchmark of investing – You would get a positive return long term if you had your money invested within these companies. However, if you only invested at certain points you may have lost money due to losses in some years.
Therefore, when deciding when to invest, you are much better off simply jumping in, rather than trying to time your investments. Investing is for the long term. The fluctuations which may come, including the possibility of downturn within your investments, will have no effect long term. Ideally you will be ensuring you buy your investments with the idea of holding them to maximise returns. It may be worth considering the idea that time in the market beats timing the market.
· Investing at Highs:
Investing at highs can certainly seem a conundrum to investors. On the one hand why would you want to invest if something is at its all time high. Surely that only means its going down. Then on the other hand, the stocks must be doing well so it really could be the best time to invest.
However, markets are often at all time highs. Assets grow with inflation. Therefore, they hold their value as currency is impacted. There will always be better performing stock and there is almost no limit to what high time high can mean. In fact, if markets grew at steady rates and inflation occurred at steady rates, then the markets will always be at an all-time high. It essentially means that there will always be all time highs amongst the fluctuating market.
In fact, there is even the argument you should invest at all-time highs. A report from JP Morgan (Read Here) even suggests it is one of the better times to invest. As the markets are nearly always close to all time highs most of the time, it is important to continue investing as you would. If you waited for market to crash, you miss all the run up and therefore miss out on the previous gains. It once again follows the idea that time in the market beats timing the market.
So, should all-time highs in the market affect your decision of when to invest? Quite simply, no. It is simply better to be in the market than not, and you can be part of those all-time highs when they come around again and again.
· Investing at Lows:
Investing when the market is low is surely better though, isn’t it? The idea of ‘Buy low, sell high’ comes to mind, and yes ideally you do want to invest at the lowest possible price to get the highest returns. But how do you know if it is at a low point. If the market is at its low point, that means it can only go up, right? Well, no. the fact is, it is impossible to know where the lowest point will be. There is every chance the market can go lower.
By the time you have attempted to guess when the low point is, the market could have gone back up, possibly even to a new all time high. Lows could simply mean a bad piece of short-term news or they could mean there is serious downfall. However, typically the market recovers in one fashion or another, and trying to time that recovery is next to impossible.
Therefore, lows in the market should not have much impact on long term investing and should arguably hold little importance in your decision of when to invest. The sooner you invest, the sooner you can begin to generate returns and maximise the rewards for the future, especially when the market recovers.
· Time in the market beats timing the market
This has been mentioned throughout and you may still be unsure as to how exactly this works. Well assuming you are investing into the market you will make gains from when it is high, and when it is low. The numbers behind it show that being in the market will always beat trying to time it. Even if you are able to time it successfully. Therefore, it always makes sense to invest as soon as you can in order to reap the rewards long term, thus linking back to the idea that now is always the ideal time to invest.
· Do your investment choices affect when to invest?
Yes and no. At the very least, your investments should be considered as part of when to invest your money. When you choose your investments, you will want to consider if they are the correct buy at this moment in time. Some will be and some won’t, so it will be down to your judgement.
You may choose that now is the right time if:
- You believe in your investments long term future. If you opt to invest in individual shares, you may find a company which you like which you would like to be involved with. That company’s share price can increase or decrease in the short term, which you are unlikely to be able to predict. On the one hand it may go down in which case you can buy the stock at a lower price. However, it could increase which means you missed the share price you were going to buy at. Therefore, rather than waiting around, it may be more effective to enter the market now. You don’t want to feel you missed out on growth because you waited for a better price.
- You are buying the market. If you opt to buy into a number of companies – a fund, then it is unlikely to matter when you invest. However, to repeat what has already been said, time in the market beats timing the market. Therefore, you will more than likely want to enter as soon as you can.
There may be that rare occasions where you opt against investing now based on your investments if:
- You aren’t sure about the investments you are choosing. If you really don’t know what to invest in, then make sure you have gone back to basics. Learn as much as you can and choose investments which suit you at that moment in time. There is even the option to invest in the whole market if you really are stuck. Take your time with this decision as there really is no point rushing into something you don’t understand. Depending on your knowledge and your aims, it may be wise to consider alternative and potentially more appropriate investments for you. It will mean you are able to invest as soon as you can.
The truth is there is no ideal time to invest your money. Investing should all be on your terms and you should begin as soon as you are ready. However, assuming you are ready, then why wait. There really is no time like the present.
Whilst it may be important to consider the state of the market, it shouldn’t have much impact on your choice to invest. Fluctuations in the short term should not put you off. Investing is for the long term. Therefore, it is important you are in the market, rather than attempting to time it.
It is also possible your investments could play a part in your decision, and you shouldn’t rush into making the decision to invest. But once again, as soon as you are ready, now is always the best time to begin investing. The sooner you invest, the greater your returns could be long term.