When is a Good Time to Invest?
Understand the best time to invest to reduce risk and have the greatest chance of making gains.
Ever since we launched Douugh Portfolios, we’ve been getting the question, “When should I invest?” After all, at the time of writing this post, the stock market is hovering around an all-time high. Wouldn’t it make sense to wait until it falls a little (or even a lot) and get in when stocks and funds are less expensive than they are now?
Because “buy low, sell high,” right?
Well, kinda! Investing is all about the long game, working towards your long-term goals. Buy low, sell high, can be a difficult game unless you have a magic ball that tells you the exact time the market will be up or down.
Here are some of our thoughts about how we think of investing.
Invest a little bit each month
Getting into the habit of regular investing is almost as important as the amount you invest!
The average stock market return is historically 10%1 annually before inflation. So over time, even a few percentage points can make the difference between retiring with a tidy nest egg and continuing to drudge away in your golden years.
The stock market reacts to all kinds of factors, from global geopolitics to national elections, to consumer sentiment, to the weather (yes, the weather). The headlines make a big deal over daily drops and surges in the stock market, but ten years from now, probably no one will remember them.
We’re fans of investing for the long-term and hitting goals. You might not hit your goal in a week or even a year, but over the long-term, you should be able to build serious wealth.
The past decade has been great for stocks. From 2011 through 2020, the average stock market return was 13.9% annually for the S&P 500 Index2. If you had invested $25 every week for 10 years at a 13.9% return, it would have been worth $28,127.143.
Ride the waves
Investment markets rise and fall. Some sectors will outperform others for a time, and then in turn they’ll be outperformed. One of the biggest mistakes an investor can make is reacting emotionally to the market.
But if you understand that it’s normal for the value of your investments to fluctuate and learn to ride out the bumpy patches, you can save yourself a lot of stress—not to mention money. A good place to start is to pick a fund that shares your conviction that key areas they are invested in will grow over the long - if you believe, for example, that tech, or renewable energy, or crypto (or all three) will become more valuable in the future then you’ll find an investment fund that shares the same view. Then ride the long-term waves.
Don’t put all your eggs in one basket
We know it’s a cliché, but the smartest way to protect yourself is to diversify. Putting everything you have in a single stock, or even in a single industry can be risky because that stock (or industry) could tank and leave you with nothing. Spreading your investments around lowers your risk while still giving you the potential for good returns.
When investing, one of the smartest things you can do is protect your capital, ie. reducing your losses. Why? Think about it this way, if you have $100 today and it drops by 50%, you have $50 right? Now to get back up to $100 your $50 has to grow by 100%, not 50%. Protecting what you have as best you can and allowing that to grow over time should give you a better outcome in the long term.
Diversification helps to protect your downside whilst still giving you exposure to the upside. This is done by investment in things that history and data show us are ‘non-correlated', i.e when one goes down, the other goes up and vice versa. Typically we see this when equities go down, bonds go up. Increasingly investors are looking to new assets, like Crypto to offer a new non-correlated asset that has high growth potential.
You can also have assets whose value isn’t tied to larger fluctuations in the traditional markets. Certain types of assets are generally less reactive than stocks to economic news and market volatility. Including Real estate/REITs, foreign bonds, gold, and other precious metals.
Most investment choices boil down to a simple question of risk. If an investment’s potential reward outweighs the potential risk associated with it, you have yourself a desirable setup. On the flip side, if an investment seems too risky but isn’t compensating you sufficiently for that risk, it may be worth not pursuing it. Remember though, that risk is totally personal, what is low risk for you, might be high risk for the next person. You should also take into account your goals, risk tolerance, time horizon, and expectations. These will act as more of a set of guidelines and strategies.
To invest in progress is to invest sustainably. It's about recognising the companies that are trying to solve some of the world's biggest challenges and that this can be one of the best positions to grow.
Sustainable investing considers environmental, social, and corporate governance (ESG) to generate long-term competitive returns and positive societal impact. In fact, over the last five years or so, a range of sustainable equity indices have actually outperformed standard non-sustainable benchmark stock indices such as STOXX Europe or MSCI World.
Over the last five years or so (2016-2022), SRI indices such as MSCI World SRI have delivered a 14.1% compound annual growth rate (CAGR) in returns since the beginning of 2016, 1.1% more than the MSCI World standard benchmark index4.
There are many motivations for sustainable investing including personal values and goals. Most people seek a strong financial performance, but alongside this believe these investments should be contributing to advancements in social, environmental, and governance practices.
Investing involves risk. You aren't guaranteed to make money, and you might lose the money you start with.
Douugh Australia Pty Ltd ABN 76 617 000 138 operates under Douugh Australia Pty Ltd AFS License No. 500063. Although we endeavour to ensure the accuracy of information we provide, we do not accept responsibility of liability for any errors or from any loss from its use. Any information provided is general advice only and has been prepared without considering your objectives, financial situation or needs. We don't provide personalised advice or recommendations. Before making any investment decision you should consider whether it is appropriate for your situation and seek appropriate taxation and legal advice. For more details, see our FSG, Terms of Service and other disclosures.