The best time to invest is generally right now.
The Global Financial Crisis was so dramatic that it still looms large in the minds of many investors, almost as if it had only just happened. Anecdotally, there are investors with their money still waiting in the bank for a sign that the world is a safe place and that they can invest more widely. But while they have been waiting the Dow Jones Industrial Average in the United States, as an example, has grown around 300% since February 2007. More if dividends were reinvested.
The 1987 share market crash had a similar impact on the psyche of New Zealanders. 30 years later it still comes up occasionally in meetings as a reason not to invest in shares. And yet the market has gone up by as much as 1,000% since. And the GFC has been added as a new reason – despite the NZX having returned approximately 350% since February 2009.
Fear can be good. It's designed to keep us safe. We don’t even have to have direct experience - the stories of others can also affect us. And so it is with market crashes even if, in reality, they are relatively infrequent and that share markets have always recovered and gone to new highs. And, for some very sound economic reasons, will continue to do so in the future.
But often it seems like the negative news overwhelms the positive. We could of course rely on the experts who appear readily in publications or on television to tell us what the future will look like. But research suggests that experts have no special insight into the future and are subject to their own biases and human shortcuts. Reflecting that uncertainty they will often provide scenarios. And our brains, wired that we give more weight to the possibility of a negative outcome than a positive one, lead us to hesitate. We decide to hold off investing until the omens appear better.
But when will that be? I have a chart that looks back in time year by year. In each of those years are a series of events that could be read as negative. Perhaps an election with an uncertain outcome, or a threatened trade war or a bad economic report.
Ultimately, we can’t escape the reality that the future has risks. But just as our actions can be risky, so can inaction. It is better that we seek to understand risk and to manage it than seek to avoid it altogether – the risk being that, through lack of return, inflation eats away the value of the wealth that we have created and worse, that we ultimately have insufficient funds. That we outlive them.
The longer term our timetable, even just for a portion of our funds, the less likely getting the timing right will matter. Conversely the reality is that each day, month or year we don’t invest potentially makes the job of funding the retirement we want more difficult.
“Prediction is very difficult, especially about the future” said Niels Bohr. So true. Despite that the very simple truth is that the best time to invest is generally right now.
The 1987 share market crash had a similar impact on the psyche of New Zealanders. 30 years later it still comes up occasionally in meetings as a reason not to invest in shares. And yet the market has gone up by as much as 1,000% since. And the GFC has been added as a new reason – despite the NZX having returned approximately 350% since February 2009.
Fear can be good. It's designed to keep us safe. We don’t even have to have direct experience - the stories of others can also affect us. And so it is with market crashes even if, in reality, they are relatively infrequent and that share markets have always recovered and gone to new highs. And, for some very sound economic reasons, will continue to do so in the future.
But often it seems like the negative news overwhelms the positive. We could of course rely on the experts who appear readily in publications or on television to tell us what the future will look like. But research suggests that experts have no special insight into the future and are subject to their own biases and human shortcuts. Reflecting that uncertainty they will often provide scenarios. And our brains, wired that we give more weight to the possibility of a negative outcome than a positive one, lead us to hesitate. We decide to hold off investing until the omens appear better.
But when will that be? I have a chart that looks back in time year by year. In each of those years are a series of events that could be read as negative. Perhaps an election with an uncertain outcome, or a threatened trade war or a bad economic report.
Ultimately, we can’t escape the reality that the future has risks. But just as our actions can be risky, so can inaction. It is better that we seek to understand risk and to manage it than seek to avoid it altogether – the risk being that, through lack of return, inflation eats away the value of the wealth that we have created and worse, that we ultimately have insufficient funds. That we outlive them.
The longer term our timetable, even just for a portion of our funds, the less likely getting the timing right will matter. Conversely the reality is that each day, month or year we don’t invest potentially makes the job of funding the retirement we want more difficult.
“Prediction is very difficult, especially about the future” said Niels Bohr. So true. Despite that the very simple truth is that the best time to invest is generally right now.
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Stephen McFarlane is an adviser with NZ Funds Private Wealth in Timaru. The opinions expressed in this column are his own. A copy of Stephen’s Disclosure Statements are available on request, free of charge.
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First published in the Timaru Courier on 12 December 2019, as 'The best time to invest is generally right now.'
