When is the best time to invest?
Alex Tekie
Ethiopian Review, August 1996
When is the Best Time to Invest? Sir John Templeton is the legendary founder of the Templeton mutual funds. When listeners often ask, “When is the best time to invest?” he, “Whenever you have the money.” And history bears him out.
You can always find a reason to stay away from stocks—if that’s what you’re looking for. But here is something the media haven’t reported: During the 1980s, the Dow Jones Industrial Average rose 245%—not counting reinvested dividends!
The media seldom report such long-term trends. But to the intelligent investor, long-term trends are far more important than day-to-day events.
When you invest in any kind of security, you do face risks. The most obvious is loss of money. But there are other kinds of risks as well—risks that affect all investments—like the loss of purchasing power.
For example, in 1959, $100,000 would have bought 33 top-of-the-line Oldsmobiles. Today, that same $100,000 will only buy four top-of-the-line Oldses. That is a dramatic loss of purchasing power—but it represents an average annual inflation rate of only about 6%. That is the return your 1959 investment would have had to produce, after taxes, to have its original purchasing power today. Obviously, putting your money under a mattress, or in a CD, is not enough to keep up with inflation—to say nothing of the additional erosion of taxes.
Why do most investors fail to meet their investment goals? There are three main reasons:
1- They have no plan
2- They select the wrong funding vehicles—investments that don’t keep up with or outpace inflation and taxes
3- They let their emotions influence their decisions
The secret to successful investing is not timing the market, but time in the market.
Let’s look at how you would have fared if you had invested $10,000 in the Dow Jones Industrial Average on the worst day of each year—the day the market peaked—over the last 15 years. A total investment of $150,000 would have grown to $379,931. Had you been fortunate enough to invest on the best day of each year, that same investment would have grown to $490,134.
By investing the same amount of money at regular intervals, you can avoid the temptation to time the market. This powerful long-term investment technique is called dollar-cost averaging. It helps you buy more shares when prices are low, fewer when prices are high.
Dollar-cost averaging in itself doesn’t ensure a profit. If you have to sell your shares at a time when their price is lower than the average price you paid for them, you will have a loss. But dollar-cost averaging does reduce the price you have to get to break even.
As mentioned earlier, you can always find a reason to stay away from stocks. But over the long term, the stock market has continued to rise, preserving and enhancing investors’ purchasing power. For more information on how investing in stocks and stock mutual funds can help you reach your financial goals, talk with your financial consultant today.
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Provided by Alex Tekie, a financial consultant with the investment firm Wheat First Butcher Singer in Washington, DC. For more information, you may contact Alex at 1-800-888-7172. Wheat First Butcher Singer is a trademark of Wheat, First Securities, Inc., Member of the New York Stock Exchange and SIPC.
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