Should I start investing now that the sharemarket is down?
With the ever-increasing public emergency that is the spread of the coronavirus, we are getting a lot of questions from our clients about whether now is a good time to start investing given the sharemarket has dropped.
The answer to this question however, much like all things in finance, is ‘it depends’.
“Be fearful when others are greedy. Be greedy when others are fearful”
– Warren Buffett
Warren Buffett’s infamous quote about being greedy when others are fearful seems to have really sunk in. It’s actually surprising how few people are contacting me to discuss that they want to sell their investments but instead to discuss that they want to buy more.
We work really hard to help educate our clients as they start investing to understand this and to make decisions accordingly. But being greedy can be an issue as well…
Why greed can be as bad as fear
It seems that most people understand that panicking and selling your investments is a bad idea. If it is the case that you are investing consistently with your goals, then you likely have a long timeframe until you want to draw down on that investment. A long timeframe means that any short-term reduction in the value of your investment doesn’t affect that investment.
But I also believe you shouldn’t buy JUST because markets are down. Being greedy now can actually be as dangerous as being fearful if this doesn’t match your long-term goals.
Let’s take it back to fundamentals
Nobody knows when markets are going to rise and when markets are going to fall.
For this reason, we never recommend that you try to ‘time the market’. Instead, investments should be based on your financial plan.
That being said, you would be crazy not to pay attention to events such as this. In circumstances of major financial correction, there is potentially a lot of opportunity to obtain investments at cheaper prices, but this doesn’t mean you should throw your whole financial plan out the window.
- If it is the case that investing is already part of your financial plan, you may want to review and see whether you do have the opportunity to regularly invest more. I would never recommend that you try to hold off until the ‘bottom’ and invest a large amount. Instead, you should continue to regularly contribute as per your financial plan.
- If you want to start investing, then like always, you need to review your entire situation. How much do you have to invest? What is your timeframe? What would happen if this money went down in value and how would you feel? What is your contribution plan? All of these things need to be addressed before you start investing.
But why can’t I just invest and get rich?
It’s important to remember that nobody knows how low the sharemarket will go or alternatively, how long it will be before we start to see share prices return to normal. It is not an outrageous concept that the effects of this virus will be felt economically for years to come.
If you do get greedy and put money into investments you need in the short term, you may need to pull that money out before the sharemarket returns to its previous prices. If the sharemarket was to drop even further in this period, this may lead to substantial losses.
Like always, investing should form one part of your entire financial plan. If it is the case that you have a good cashflow plan, you have worked out your long-term goals and are ready to take action, then now may be a great time to start investing. But I wouldn’t recommend investing without a plan.
If you want to talk about your investments or want to start investing, feel free to reach out. We are always here to help.
This post is from our resident Financial Planner Ben Brett, check out his details in the About Us section.
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