Investing in stocks is very difficult. Buying them at the right time and catching the bottom while emotions are running high is nearly impossible.
Over the course of the last few weeks, I have been asked many times about when the right time to invest is. The answer is ALWAYS. The caveat is that we use excess savings that are not needed for near term expenditures, nor are we dipping into emergency funds. Dollar-cost averaging is a tool that all investors should use to build savings and wealth over long periods of time. By allocating a fixed dollar amount every week, or every month, we can eliminate the guesswork of attempting to time the market. It also forces us to purchase stock prices when we are scared or cannot bear the thought of losing more money.
The chart below shows the S&P 500 and the Nasdaq from the February 19th highs to the lows of March 23rd. You can see a very sharp decline, and in hindsight, a great time to have sold stocks preemptively.
The next chart is from the 1st of the year through April 14th and displays how the indices have come roaring back. Perhaps some individuals perfectly timed stock purchases at the bottom. Others likely didn’t buy stocks at all.
In the backdrop of this unprecedented market move, we have seen some of the worst data we could imagine, making it very difficult to buy stocks at the right time, if at all.
- 610,206 US Coronavirus Cases and 25,830 American deaths
- Nearly a third of 4 million US renters did not pay their rent between April 1 and April 5
- Almost 4% of all mortgage loans are in forbearance – up from 0.25% in early March
- More than 15 million Americans have lost their jobs and Goldman Sachs predicts 15% unemployment – rates not seen since the Great Depression
- Crude Oil has fallen from $60 per barrel to $20 – Oil under $30 leads to layoffs, less capex, bankruptcies and consolidations across our entire energy sector
- JPMorgan reportedly set aside $8.3 billion in provision for credit losses for Q1 alone, up 453% from Q1 of 2019 – this is just one bank
- High-yield default rates are likely to rise to 10% over the next 12 months, more than triple the rate of 3.1% of 2019 – 14% default rates in 2007-2008
- Since March 16th, 46 companies have withdrawn quarterly guidance and 151 have pulled annual guidance
- The IMF projects global growth in 2020 to fall to -3% from +3.3% from Jan 2020
This list could go on for pages. On the bright side, we do have the Fed issuing trillions of dollars of assistance to prevent the unemployment rates and default rates from spiking significantly higher. Maybe that is why you cannot look at fundamentals and let emotions rule your investment decisions?
Would you have bought stocks on the heels of this data? Would you today? I do not know where the market will go this month or by the end of the year, but historically, stocks will trend higher in time. Having an automated and systematic purchase plan based on your income and savings rates can help you remove the emotion from investing.
*Athanassios Panagiotakopoulos is an Investment Advisor Representative with Dynamic Wealth Advisors dba Life Managed. All investment advisory services are offered through Dynamic Wealth Advisors.
