A young investor uses a smartphone to review options. GETTY IMAGES
In investing, when people are concerned, those that stay in the game tend to win in the end. While uncertainty may be high right now, it’s still an important chance to build long-term success, reaching investment goals. I recently wrote about this for Forbes.com, which I’ve republished below. If you ever thought you needed the right time to enter the investing world, there’s no time like the present.
As the old idiom goes, you’ve got to be in it, to win it. That’s certainly true of investing. But with continual fears of a recession, it’s easy to see why one might hesitate to enter the market today.
For those investing for the long term, however, ignoring the macro fear and negative returns can give you an opportunity to buy for cheap. Or cheaper, anyways.
Cheap Compared To What?
When evaluating an investment over decades, using P/E may not provide the best tool. For trailing P/Es, it weights the price of the stock to earnings – or what the company has made. For forward P/Es, it’s about evaluating the price of the stock to earnings next year. Neither evaluate the earnings of the market 30 years from now, nor would an estimated 30-year P/E provide a reliable measure.
Looking for that perfect time to jump in, based on this measure can leave you doing a two-step, with one foot in and one foot out. Based on recent history, though, it certainly provides support to landing a cheap spot to purchase now.
Stretching Your Investment Dollar
Buying more now, when asset values drop creates a real opportunity for you to supercharge your savings if stocks rise in the future. By buying now, you’re purchasing more assets for the same amount of price than if you waited until next year, and the market has already rebounded.
It’s simple math and highlights the value of dollar-cost averaging. When stocks are cheap, if you’re putting in a specific amount of money each month, then you will gain more shares than when stocks are expensive. If you invest $500 in a market index fund when it’s priced at $250 per share, then you gain two shares. If that rises to $350, then you gain about 1.4 shares. Again, simple math.
This gives those that want to begin their investing journey a potential opportunity to begin when their money will go a little further. While inflation may have impacted the ability to buy food, it has made stocks cheaper in the short term. You might as well take advantage of a deal while you can.
Market Analysts Don’t Know Your Investment Goals
The other reason to buy in now? The prognosticators don’t know.
While many economists may expect a recession soon, how deep of a recession we experience remains to be seen. Nor do we know how such a pullback will impact market returns.
As someone who plans to invest for the next 30 or 40 years, however, if there’s a pullback, it just means you will get more for your investment buck if you continue to buy shares while others sell. If, instead, the market shows resiliency, then you still probably expect the U.S. economy to continue to grow over the next few decades. This indicates that investments, when looking long-term, could still be cheap, even if the market appears expensive today.
Instead of worrying about the right time to dive in, remember that the right time is typically now.
And, with the market slightly cheaper than we’ve seen recently, what better time to start?
