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Q&A with R&A - When Should I Start to Invest?

| January 26, 2017
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Editor’s Note: In this new blog segment Charlie will answer some of our client’s most asked financial planning questions on a bi-monthly basis. If you have a question that you would like Charlie to write about, don’t hesitate to reach out at [email protected] 

Welcome to 2017! Hopefully you have committed to setting some financial resolutions in the New Year, and hopefully we can help. This month we are going to dive into the fundamentals of investing. Also, if you are looking to start a full financial plan this year check out my previous post on how to start planning for retirement.

Introduction to Investing

The basic concept behind investing is to buy low and sell high so that you make a profit on your initial investment. While that may not be a novel idea to most, the question of “Am I buying low?” is not easy to answer. Our philosophy? Don’t worry about it! Market timing has not been shown to yield better market returns over the long run. Your financial plan encompasses your lifetime, which is the longest time frame you have, and your investments should match that.

Time in vs. Timing the Market

"My favorite time frame is forever." – Warren Buffet

Time in the market is the time that you spend invested over the duration of your time horizon (e.g., time until retirement, savings goal, travel goal, etc.). Timing the market is waiting until you believe the market is at its lowest to invest. Many market timers often suffer from mistiming the market, or worse, missing out on the big gains. According to JP Morgan’s Guide to Retirement, if you were fully invested in the S&P 500 from January 1996 to December 2015 you would have had an 8.18% average annual return. If you just missed the 10 best days your annual return would only have been 4.49%! Missed the 20 best days? 2.05%. 30 best days? Your return would be a whopping -0.05%...  Not buying into highs is important, but it is much more important not to miss those highs in the first place.

Source: JP Morgan Asset Management

If I can’t time the market, how can I invest confidently?

Timing isn’t everything. While the market is not always up every year, it has continuously risen since inception. However, there are techniques you can use to reduce timing risk. One such technique is Dollar Cost Averaging (“DCA”). DCA is a process through which you invest the same amount of money every month for a set number of months. In theory, dollar cost averaging will allow you to buy into the market at a range of different prices that could average out to a lower median price in volatile markets.

 

Source: JP Morgan Asset Management

The Rocco & Associates’ investment committee and research team have over 40 years of investing experience in up and down markets. To learn more about your options do not hesitate to reach out today!


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All performance referenced is historical and is no guarantee of future results.

All indices are unmanaged and may not be invested into directly.

Investing involves risk, including the risk of loss.

Dollar cost averaging, diversification, nor asset allocation ensures a profit or protect against a loss.

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