Quiz!
Are you likely to make money on waiting to invest until conditions become better than today?
1. Yes, the negative news can lead to continued declines. Waiting allows you to buy lower.
2. No, as conditions improve, stocks tend to go up.
The Latte of Investing
You may have heard how a daily $5 café latte can add up to significant money over time. Many people see it as a small daily cost that makes no difference in the big scheme. They ignore the fact that it is recurring, leading to a much bigger total. While different people value the store-bought latte to different degrees, it demonstrates how some people may overspend on small recurring items.
There is an analogy in investing. Many people get nervous about investing after declines (that involve negative news), and delay investing until things calm down. They feel that whatever gains they may miss on the small amount is dwarfed by the gains they will enjoy with the big remaining portfolio. While the logic may sound convincing at first, when repeated, the small, missed gains can add up to very big money.
What can you do? Operate consistently: invest money as soon as it is saved.
What if it’s tough to do? Recognize that if you are uncomfortable investing at the current low level, you are likely to be even less comfortable investing at an even lower level. You are very likely to wait until the news is better than today, leading to buying higher, and missing gains. Past experience of investors supports this theory – investors tend to significantly underperform the investments they use.
Initially, it may be tough to be consistent. Once you form a habit, you may enjoy the automatic action, without a need to debate often.
Quiz Answer:
Are you likely to make money on waiting to invest until conditions become better than today?
1. Yes, the negative news can lead to continued declines. Waiting allows you to buy lower.
2. No, as conditions improve, stocks tend to go up. [The Correct Answer]
Disclosures Including Backtested Performance Data