Disclaimer: The statements made in this post are the opinion of the author. They should not be viewed as financial advice. Please consult with a financial specialist before making any financial decisions.
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It is impossible to change the past. Once a second is gone it is gone. So please don’t spend anytime worrying about mistakes you’ve made financially or otherwise. Just go out and change your life today.
That’s the key.
When I was in high school they had a banner hanging up which I regularly made fun of which stated, “Your future starts today”.
I thought that that was stupidly obvious and a pointless banner. But, when you think your past has ruined you, look to the future. It starts today and that is what you can control.
There is a quote that says, “The best time to invest was yesterday, but the second best time to invest is today.”
I’m going to break down why that is true and some cautions to help you avoid diving in unprepared.
Reasons Why It Is Always Better To Invest Now
The market is too hot!
I’m waiting for a correction.
I heard that the stock market is going to crash on the news the other day.
These are all reasons that people give for not investing. And it all comes down to the same fear. What if I put in $1,000 today and it is only worth $500 tomorrow.
While that fear is an emotionally hard thing to deal with, it is logically not something you should worry about. Here’s why.
First: Swings Are Rarely that Drastic
Having your money drop by 50% in a day is, historically, unrealistic. The largest single day drop in history was around 22%. Even the Great Depression didn’t drop that fast. It took three years for the total 82% drop of the Great Depression to occur, which would give anybody ample time to react if necessary.
Is 82% a big deal? Yes, but is it something to be worried about tomorrow? Probably not.
Second: If You’re Starting to Invest Now You Probably Aren’t Retiring Soon
The purpose of investing isn’t to get rich quick, it is to steadily build a portfolio over time that will support you in retirement.
So if you won’t invest today because you’re worried your stock value will drop tomorrow.
If stock values drop tomorrow and you won’t retire for 20 years think of it as retirement stocks going on sale.
YOU DON’T LOSE MONEY UNTIL YOU SELL.
Since you don’t have to access your stocks for 20 or 30 years, you have nothing to worry about.
As you can see in the graph, the stock market (here represented by the Dow Jones Industrial Average) goes up over time. And when you’re 20 years from retirement you have time.
Third: Time In the Market Beats Timing the Market
I’m not sure who said it, but it is a brilliant truth. Having your money in the market long term beats holding back until you think the market has bottomed out.
Let’s take the decade from 2007 to 2017 as a pretty extreme example.
You want to invest $10,000 over the course of 10 years.
If you were a brilliant fortune teller who knew that the market was going to crash in 2008, you might choose not to invest in 2007, 2008 or 2009 while the market dropped, and then started investing in 2010 after it bottomed out. If you average out $10,000 over the 7 year upswing, you would invest $1,428 a year.
At the end of that incredible bull market you’d have a whopping $16,554!
But, if you consistently invested $1,000 a year for the whole decade, even with the 33% loss in 2008 you would end up with $18,643. You can check the numbers using this calculator.
Now I realize that isn’t a perfect simulation, but let me ask you this, does anybody know for certain when the market will reach it’s peak? Doesn’t anybody know for certain when the market will bottom out?
Since the answer is obviously no, the only choice is to start investing now.
Good Reasons To Delay Investing
Now, even though the best time to invest is now, that doesn’t mean you specifically should invest immediately.
There are a few things to consider before you start investing.
First: Don’t invest from a position of financial weakness.
If you spend more money each month than comes in you are in no position to invest. Start by getting your financial house in order. Track your spending, reign in the excess, maybe even take some drastic steps to reduce spending.
Then, once you’re spending less that you earn, you can invest the difference.
In other words, you can’t invest money you don’t have.
Second: Don’t invest without an emergency fund.
Investing is naturally risky. Granted, some forms of investing are much less risky than others, but that doesn’t mean there is no risk.
If by some terrible disaster you lost all of the money you have invested you need something to fall back on.
Having money in the bank now will give you the security you need to invest for the future.
Third: Don’t invest if you think you’ll get rich quick.
Any investment that offers the promised of quick riches is almost guaranteed to be a scam. All of the most successful investors you’ve heard of did it very slowly over years.
So if you’re “investing” in the latest stock tip or the coolest crypto please realize that you’re actually gambling.
The goal of true investing is to minimize long term risk to ensure income in the future.
A company you own stock in can go out of business. That cryptocurrency can go bust. But a well balanced portfolio will likely end with financial success.
So please take just a few hours to read about the basics of conservative investing before jumping in on something your cousin friend’s brother says will make you rich.
Start Investing As Soon As You Can
With all that being said, best practice is to start investing as soon as you can. Get your finances in order and get an emergency fund built so that you can start investing from a position of strength.
The sooner you invest the more likely you are to have enough money put aside for retirement.
What steps do you need to take to start investing? What do you want to learn about investing? Tell me about it in the comments below.
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