By Eric Taylor, President, Tompkins Financial Advisors
Pictured above: Eric Taylor.
If you’ve ever considered investing your money, you’ve probably wondered: “Is now a good time to invest?”
While timing is important, there are three essential questions you should ask yourself before deciding to make investments:
- Should I be investing at all?
- Should I invest now?
- What should I invest in?
Let’s take a closer look at each.
Should I be investing?
This first question depends entirely on your financial situation. Before considering investing, it’s recommended you have a strong financial foundation in place.
A common consideration many take before investing is paying off any high-interest-rate debt, like credit card debt. This is relatively simple math: the average credit card has an interest rate of roughly 20%, which is approximately double the annual return of the stock market. This means you’ll “earn” more by not having to pay the interest you owe on your credit card bill. Once your high-interest-rate debt is taken care of, build an emergency savings account with three to six months of living expenses in a liquid vehicle. This could be a checking, savings, or money market account. These accounts won’t have the highest returns, but will keep money available should you need it.
If you have eliminated high-interest rate debt and built an emergency savings account, then the answer to the first question is yes, you should be investing.
Should I invest now?
If you’ve determined you’re ready to invest, then the answer to this second question is likely yes, too.
The financial markets are unpredictable in the short term, but they have a remarkable ability to continue to climb the wall of worry. Investors consider several external factors, from the next employment or inflation report to global conflicts. Despite volatility, the markets have continued to rise over time, and there is little reason to believe that they won’t continue doing so in the coming decades.
While the best time to invest might have been in the past, the next best time is often today, especially if you’re investing with a long-term mindset. Until a modern-day Doc Brown can send us back in time with his DMC DeLorean, this advice stands!
What should I invest in?
This final question is a personal one and closely tied to your specific risk tolerance.
Risk comes in all shapes and sizes. Some individuals will find a 5% loss earthshattering, while others are unfazed by a 25% loss and believe the markets will recover. When deciding your risk tolerance, you should consider:
- Liquidity needs (if you will need quick access to this money in the short term)
- Emotional resilience (how you would feel and react if your portfolio dropped 20% tomorrow?)
- Investment goals (are you investing for retirement in 30 years or a house in three?)
The more risk you can reasonably tolerate, the more heavily invested you can be in higher-returning assets like stocks. If you have more time to leave your money invested, higher-risk, higher-return assets could be more appropriate for you.
Fine-tuning an investment strategy takes time and thoughtful reflection. It requires understanding not only of market behavior, but your own behavior. While there is no one-size-fits-all answer, a disciplined, intentional approach guided by your financial situation, investment goals, and risk tolerance is the best starting point.
The question isn’t just whether now is the right time to invest – it’s whether you’re prepared to invest wisely, consistently, and with long-term goals in mind.
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Source: bctv