Is it always a good time to invest? Well if you ask most investment advisors and professionals on Wall Street, the answer is “Yes, it is always a good time to invest in the stock market.” What do you think? With the U.S. economy unarguably in a recession, the real estate markets in a mess, and the credit crisis, are we now facing a time where the worst is behind us?
“It is always a good time to invest in the stock market” is your only option when investing in the stock market. This is the challenge with those on Wall Street. The majority of professionals who either manage money or are financial advisors only have one strategy. Their strategy just consists of growing money.
They show you performance numbers and how great their investment strategy has performed…during the good times. What about during the bad times? They will just show you how it paid to stay invested because the stock market ALWAYS comes back.
So since the market always comes back, these times in the stock market when stocks have lost money provide great opportunities to buy stocks ON SALE. Thus, it is always a good time to invest in the market. The best part of this strategy is that it is easy to explain, easy to understand, and even easier to sell.
Well, unfortunately, investing just doesn’t work that easily. Yes, it is always a good time to invest. It just depends on your strategy. If you operate under the buy-and-hold, always stay invested for the long-term, it isn’t always a good time to be invested. If you have a strategy that invests for both good and bad times in the market, then yes there is always opportunity.
This is the challenge with most investment strategies as practiced by the financial advisor community. It is tough to have long-term success with only a strategy for growing money. Investment success is about a strategy for growth AND a strategy for investing during bad markets. Yes, we can and will go through long periods of time where it doesn’t make sense to fully invest in the stock market.
For instance, the S&P 500 composite return over the past 10 years has an average return of 2.4% per year. You would have made more being invested in a money market account.
The Dow Jones Industrial Average returned 1.61% a year between 1966 and 1982. The bottom line is that during those long time periods it didn’t pay to just invest for investment growth. However, if you had an investment strategy that invested for both good and bad markets, then there were a ton of opportunities.
The proof is in the returns. A growth strategy doesn’t always work because we aren’t always in that type of stock market environment.
Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.
