When’s the Right Time to Invest?Thursday, March 30th, 2017
By Joseph Manfredi | MBA Chief Operating Office, Senior Portfolio Manager
Often when our BWFA advisors are sitting down with clients to review their financial and investment management plans, we discuss what to do with accumulated cash. Invariably, clients have more in cash reserves than what is prescribed in their financial plans. Given the current surge in stock market indices since the November elections, clients are even more uncertain about investing their excess cash now, due to concerns that we are “at a high”.
So, when is the right time to invest?
For first time investors, that initial stock purchase is a crucial one. A focus on finding the right point to invest for them can be a daunting task. If they experience an early loss of their principal, they may lose the necessary long term perspective and change the proper course. Specifically, they may become averse to using the long time periods in the market to meet longer range goals–retirement, children’s education and buying a first home–or they may cease investing altogether.
This same psychology of “when” to invest cash can still creep into the decision-making process of even the most experienced investors, who’ve been with BWFA for some time. Again, this can result in these same veteran investors failing to make prudent decisions with cash reserves.
So, rather than guessing as to the “right” time, focus on your plan and what you want, or need, to accomplish with your investments. Like the first time investor most, if not all, of our experienced clients have a longer term time horizon, regardless of age. By remaining in the stock market long term (more than 3-5 years), any “mistakes” as to timing the transfer of excess cash to stocks can, and will, be made up over that time. The longer we keep money invested, the less we need to worry about volatility risk or timing the market perfectly—the latter being a near impossible feat!! As a matter of fact, investing in stocks continually from 1995 to 2014 would have earned you an average annual return of approximately9.8%. If you missed just the 10 best trading days over that long period of time, your return would have dropped to 6% for that same period of time–still a reasonable return, but you can see the corrosive effect of staying out of the market, even for a short period of time, or missing just a few strong trading days!
As a rule, only keep in cash an amount that you will definitely need to access within 0-2 years—as you can always access additional funds from your well diversified, managed stock investments and work with your advisor at BWFA to manage the potential risk from doing so.
Our clients know their advisors focus on our firm’s long term investment process, coupled with their formal plans formulated by BWFA. By doing so, we can ignore the prattle from the talking heads in the media who like to obsess on the short term ups and downs of the stock market, as well as commodities, interest rates, and bond prices among other areas. All of those things simply distract from achieving our ultimate goal of long term, optimal success by remaining fully invested over that long term. Even with short term volatility, there is little arguing that continually investing in stocks over the long term will build our clients’ wealth much faster and more effectively than cash over the same period.
Talk with us about making your decision about investing cash reserves.
The time to add to your long term investments is now!!