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Is it the right time to invest now? Are you afraid of timing the market poorly? Wondering whether to wait and see if conditions improve?
I suspect for first-time investors there are always plenty of predictions of impending disaster.
There are always lots of reasons to delay.
But odds are that you are more likely to regret not investing now. Even if you time your entry into investing really poorly, markets recover over time.
If you don’t start now, how will you know when the right time to invest is?
It’s critical you overcome fears and take the plunge if you are scared of investing.
Aussie Doc Investment Timing
Our household started investing at the start of 2017. I faced these same doubts and fears. There were predictions of a major stock market crash every week in the media. My “financial advisor” (aka insurance salesman) warned the market was at a peak and the firm were manoeuvring client investments to lower risk allocations.
I had read all the books. I had followed several financial blogs. Would I ever start investing If I waited? I took the plunge. Our first investment outside super was with RAIZ invest*. I set up my direct debit and watched the market far too closely.
Each 2% drop in the ASX was accompanied by media hysteria, and at first, it made me very nervous.
I considered withdrawing my hard-earned cash. My partner, who remains an investing sceptic, would read newspaper articles and report their exaggerated claims to me. Often the market had actually recovered by the time we had these conversations.
But each time this happened, I went back to those blogs, books and quotes. When the crash finally came, over three years later, I recognised the opportunity and invested cash as fast as we could.
Pushing Our Luck?
We purchased our 1st investment property in July 2019. In the months prior, there were dire predictions for the entire Australian property market. Labour expected to win, and abolish negative gearing. The media suggested the abolition of negative gearing would cause a dramatic crash in prices. My partner asked “Shouldn’t we wait?” Our friends and family thought I was crazy. ‘
“The time to make money in property was twenty years ago”.A lot of people I know
I had wanted to get in before the election. But everything takes longer than expected, buying property is certainly no exception.
Despite a global pandemic and more dire warnings of an Australian property meltdown, the property has performed well so far.
In April 2021 we finalised our purchase of a second investment property. Hoping to buy in December 2020, the media were predicting the death of the housing market due to the impending “Job keeper cliff”. Mortgage red tape and Christmas delayed our purchase significantly. December would have been a stellar time to buy. By late February the paperwork was all sorted, but we had to compete in a cutthroat market.
My partner, the media, friends and family have repeatedly warned that now is not the time to invest. Each time I invest.
It’s been nerve-wracking to ignore media doom and gloom and invest anyway. It has been terrifying to reassure my partner and invest despite his concerns. It is not a comfortable feeling.
But I’m gaining confidence in swimming against the tide each time the decision proves correct.
Opportunities come infrequently. When it rains gold, put out the bucket not the thimbleWarren Buffett
Is Now a Good Time to Invest?
But all my investments (so far) are in the past? What about now? What if the market is about to crash again?
Is now really the time to put your hard-earned savings at risk?
Whenever you are reading this, I’m sure you can find an article predicting an imminent crash.
As a beginner investor, it is natural to take these finance professionals predictions seriously.
But the truth is surprising. Finance “guru” predictions for the US stock market between 2005 and 2012 were correct just 47% of the time. In contrast, seven-day weather forecasts have ~80% accuracy.
Flipping a coin to predict the direction of the market should be correct 50% of the time. In fact, these results suggest you may be better off doing exactly the opposite of the prevailing expert suggestion at the time!
Conditions will never be perfect, and apparently, no one can predict the future (at least not repeatedly).
“Waiting for perfect is never smarter than making progress”Seth Godin
Is It the Right Time to Invest for Your Personal Circumstances?
The answer to this question is in your personal circumstances, not in (often incorrect) economic predictions.
You also need an adequately funded emergency fund. If something comes up, you don’t want to be selling your investment in a hurry and potentially locking in a loss.
Investing money you need in the next 5-7 years is usually a bad idea. Both low liquidity and high volatility make money inaccessible at short notice. You cannot sell an investment property to get money fast in an emergency. Selling shares at a bad time in the market means crystallising losses that would have otherwise recovered.
Investing When You Can’t Afford it.
I do think there is great value to be found in investing even if you can’t afford to.
Even if you are saving for a home deposit, making tiny transactions into the stock market can be a great learning opportunity. Using a micro-investment app such as RAIZ* can build your tolerance to volatility before investing “real money”. One thing to watch out for is fees. With their monthly fee model, having less than around $5000 invested is fee inefficient. Utilise “RAIZ Rewards” to earn back the $3.50 monthly fee straight into your RAIZ account.
A commonly quoted minimum investment horizon in property is 10 years. The high transaction costs and taxes associated with buying and selling property mean you are more likely to make a loss if you sell more quickly.
Is Now a Good Time to Buy Shares?
Of course, it’s always easy to tell the best time to invest in the stock market. It’s always in the past! 1900 looks pretty good, but so does every year since. Even the GFC looks like a little blip at this scale.
To put it into context, between February 20th and March 12th 2020, the ASX dropped 26.5% from 7197 to 5290 points (losing $608.5 billion dollars).
During the GFC the ASX dropped 49.6% from 6385.7 on January 2nd 2008 to 3217.5 on November 21st 2008. At the time of writing the ASX is worth over 7700 points.
Even if you had invested in either the 2008 or 2019 peak, you would still have more money as a result of investing at the time of writing (July 2021).
Over long periods of time, the stock market goes up.
In retrospect, both crashes were incredible times to invest, but this wasn’t obvious at the time. Each crash has a different cause, so this time is always different. There were frightening expert predictions at the nadir of the 2008 crash, warning there could be a further 50% drop in value before the recovery began.
If you listened to the experts and sold out to cut your losses, you would have locked in those losses and missed out on the rebound that then occurred.
Looking into Your Crystal Ball
But what about now? If you missed the COVID-19 crash, you will be ready for the next one. But should you wait?
Look at the graph above. The crashes in price really become less significant over time. A crash in 5 years time may return the ASX to today’s prices. In which case, what was the point in waiting?
Even if you know and understand this intellectually, it is still extremely nerve-wracking to invest money in the stock market for the first time.
But if you don’t start now, how long will you wait? The “perfect time” is unlikely to ever come (and is always identified in retrospect!).
Should You Invest Now in Property?
Get your crystal ball out again! Last year we were going to get a 40% drop in property prices, now instead we’re mid boom with plenty of FOMO!
We brought our principal place of residence in September 2008, amidst GFC doom and gloom predictions. I remember being very nervous we were buying at the worst possible time and refusing to overpay. Prices dipped briefly before performing quite well in the capital cities, due to reducing interest rates and strong international immigration.
Our house in a regional area remained pretty stable for a long time, but interest rates dropping steadily from 7.25% to today’s ~3% was an unexpected gift, allowing us to pay down the mortgage aggressively.
Our property choice may not have been in the best area for growth, but the purchase was pretty well timed in retrospect.
There is currently a property boom occurring. Whether buying a property for investment now is a good idea comes down to your personal circumstances and getting professional help in obtaining the best quality property whilst not overpaying. The biggest risks in a hot market are being sucked in by fear of missing out, and overpaying significantly or buying a poor performing asset.
A good quality asset will grow over time. Even if you buy at the peak of a market, over time the significance of this will diminish. If you buy a poor quality asset at the peak of a hot market, its price may never recover to the value paid for it again.
With so much of your capital and/or borrowing power tied up in a property, the most important thing to get right is purchasing a good quality property.
What about if you are not yet ready to invest? Or you are reading this article in months to years time when the property market is in the doldrums again? Is now a good time to invest in property?
Again, it comes down to your personal circumstances. Don’t be afraid to invest when everyone around you thinks property is a dud investment. You may find out that swimming against the tide of opinion proves to be quite lucrative.
The Time to Invest is Now
You only know in retrospect whether an investing decision was the right one, at the right time. Rather than trying to time the market, consider your personal circumstances carefully and invest when you are ready personally. It never seems like the right time.
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Aussie Doc Freedom is not a financial adviser and does not offer any advice. Information on this website is purely a description of my experiences and learning. Please check with your independent financial adviser or accountant before making any changes.