I worked at a big multinational company many years ago and in conversation one day with a colleague the subject of purchasing company shares came up. He told me that he’d been invested in the company for about twenty years and he had already amassed a pretty tidy number of shares.
The conversation went on to how he’d come to accumulate quite so many given his salary was not exactly huge by any standard and it turns out that for a long time the company had a scheme where you could purchase a large number of shares and this would be financed by the company itself through provision of a loan that would be paid back via the dividends produced.
Given the only qualification for the finance was to be employed by the company and then the loan was repaid by the investment itself with no additional cost to the employee, I thought it sounded like a great scheme. I was disappointed to hear the scheme no longer ran.
My colleague told me that he only participated in the scheme once when he first started at the company because the share price just got too expensive for him. He said once the price got over $5 he lost interest as he thought it was too risky for him to purchase.
The price at the time we spoke was over $30!
This ‘fear of having missed out’ is something I hear all too often and it’s driven by an emotional bias that makes us all more afraid of the pain associated with losing money in the future than what satisfaction could be gained from having a win.
Our future self is not clear in our minds unfortunately but there are strategies to take that will help you grow your financial future at the same time as having less money worries today.
Who cares?
Investing isn’t exactly the most engaging topic, hey?
I’ve worked with thousands of family’s finances over the last 20 years and without fail, eyes glass over when we talk about investing in any detail. We all pay attention to the headline of what the return is but when shown things like strategy or asset allocation our attention wanders to the more important issues in life like family, work, education.
Being comfortable with the timing of your investment is critical, even if it means you only manage to gain 1% higher returns over your investing life. The difference in 1% to what a 30-year-old receives at retirement can be over $200,000!
Do you have to care every day? Definitely not but you should care at least every now and then.
Time vs Timing
The short answer to the question ‘when is the best time to invest’ is unequivocally ‘now’ but that comes with some caveats particularly around the amount of time that you have available.
If you’ve saved some money and want to use it to buy a car next month then the idea of investing that money into shares because you could get a higher return is crazy. If you’re 30 and talking about savings in a retirement plan then investing in cash is equally crazy.
The only timing that’s important when buying is when the stakes are high and you absolutely must have funds available by a particular date (like with the car in the example above). Shares, property & bonds are all long to relatively long-term investments and cash & term deposits are all short term and if you invest for a purpose, you’ll save yourself a lot of stress about getting the timing right.
Let’s assume you’re really keen on buying some shares or some property and you’ve got 10 years before you’ll need the funds back in the bank, the buy price can be important but not so much as the value of your patience.
It’s time in your investment that matters, not the timing of your purchase.
Compound investing
Unless you’ve won the lottery, received an inheritance or sold a major asset, you probably don’t have massive lumps of cash to go and start investing.
Adding to an investment on a regular basis will reward you well regardless of if you got your timing perfect as long as what you’re investing in has a time frame that aligns with your purpose.
What is often overlooked in regular investing is that as incomes increase over time the investment amount does not adjust in line. For example, if the amount you’re investing adds up to say 5% of your after-tax income then as your income grows over time so too should your regular investment amount so that it maintains 5% or more of your after-tax income.
Alternatively, just step up the amount you invest by an amount that is affordable to you at specific times of the year such as 1st January or your birthday.
Not only will your investments grow because of your persistence but the growth will ultimately be magnified as the amount of your regular investment steps up to deliver you compound investing.
What are you waiting for?
Our most financially successful clients have accumulated their wealth over decades of steady and persistent investing.
Have they invested at the perfect time every time? Well no, but that just hasn’t mattered.
When you invest it will no doubt be small and you might not think it can amount to anything but stick at it, be dogged in your determination to continue with your plan, be persistence in stepping up your contributions and you’ll be rewarded in time.
Remember, you don’t need to be wealthy to be an investor but you do need to be an investor to be wealthy.
