Ever wonder when the right time to invest in the market is? It’s a question I hear frequently from my clients. Imagine trying out for the varsity team and finding out you made it. During the first practice, your coach sits the team down to talk about commitment, hard work and patience. They say “if you can’t show up and give it your all, this might not be the team for you.”
Very similar to investments—you’re either in or you’re out.
Just as every financial journey is unique, so too are investment strategies; a careful curation based on an individual’s goals, income, and culture.
So, when is the right time to invest?
My best advice is to invest in yourself before investing in the market.
In practice, for me that meant creating three buckets:
I always love a good plan, so look at how I break these three buckets down:
Similar to the satisfaction we get when cleaning a messy house or finally tackling that growing stack of paper; focusing on paying down debt is one of the best housekeeping tasks you can do to get your financial house in order.
For many of us, high consumer debt is that messy area of personal finance. It can be all too convenient to carry a revolving credit card balance over from one month to the next; but even if the amount is small, an average 18% APY can really add up. At that point, we begin to not just waste money, but toss away potential earnings in the market.
So, while it might not be fun to allocate extra funds to a source that’s not demanding immediate attention (they actually want you to keep a balance), it’ll do wonders for your future growth.
I like to think of it as every dollar allocated towards paying off your credit card is an automatic return on your dollar.
After the events of the past few years, perhaps we’re all a bit too familiar with the saying “save for a rainy day.” Yet even if you’ve enjoyed more sunny days than most, it always helps to be prepared.
Whether you have job security currently or are looking for new options, ensuring you have an emergency fund can help with both peace of mind and for planning purposes.
Are you looking at your current savings account and scratching your head? Not to worry. Designing the right emergency savings plan is decently straightforward.
The rule of thumb is to set aside 3-6 months of living expenses (think housing, utilities, food, and more) so you won’t have to pull money from your investment accounts or make dramatic sacrifices to your daily routine. At the very least, you should be looking at $3,000-$5,000 in cash set aside to help you manage a financial jam.
The better news? You don’t have to forgo investing in the market while you do so. Consider it a balancing act: As long as you can hammer out a plan to allocate money to your emergency fund and to your investments, you’ll be setting yourself up for both the short- and long-term.
We all begin somewhere. Perhaps you are trying to make sense of what to do with a big-time adult salary (you can also listen to this podcast I recently recorded for more insights). Or, maybe your market experience has only been with retirement accounts (if so, congratulations—you’re already an investor).
Maybe you are starting from a blank slate, working hard trying to bridge a generational wealth gap and find ways to set yourself and your children up for the future. No matter where your start point may be, dedicating time to learning is one of the best ways we can serve ourselves.
Broadly, it is helpful to consider the fact that you should not need any dollar you decide to invest for at least five years. Investing in the market is a long-term play, we can’t time the market and when market corrections happen we need time to recoup our losses.
If you’re trying to flip your money, I urge you to take a step back. This is not the place, and I’d also argue it’s never the time. Throughout history, quick rich schemes have rarely worked out.
Think of the concept of diversification as filling up your basket with different types of eggs. You’ll likely want a portfolio mix of domestic and international exchange-traded funds (ETFs), REITS, and bonds to help balance long-term risk similar to how retirement funds are often targeted to a lifecycle date.
Stocks are shares of a company that provide investors a portion of the ownership. ETFs (exchange-traded funds) are a basket of stocks or securities that you would buy/sell on an exchange that promotes diversification. It is considered a passively-managed product.
Dollar cost averaging is an investment strategy where you split up a certain amount of money to be invested at specific points throughout a period of time instead of all at once. There are a few points to consider when taking the approach and I like this explainer from FINRA.
Consider active investing like day-trading, it is often more expensive and requires time and energy to be following the ups and downs of the market. Passive investing is a “buy and hold” strategy based on long-term participation in the market. It’s not quite “set it and forget it” but you assume that you’ll make only minor adjustments over your life as needed.
An investment account that allows you to buy and sell stocks, bonds, mutual funds and ETFs.
We know one thing for sure: We can’t control the market, and beware of anyone who tells you otherwise.
For many of us the idea of placing so much of your hard earned cash away without guarantees of how it will perform can be anxiety inducing, and we want to be devoid of emotion in our endeavors here.
Instead, I advise others to focus on what we can control, which is how much we save.
Disciplined investors, hear me now. When you decide to enter the markets, do so with confidence and pride. We do not need to be fearful of the day-to-day ebbs and flows because we are in it for the long-run.
Above all else, stay the course… and when you’re ready, reach out to a certified financial planner to help you enter the market confidently and comfortably.
Want to know more? Find other financial tips and information from Rianka:
About Rianka R. Dorsainvil
Rianka R. Dorsainvil, CFP®️ is the Co-Founder and Co-CEO of 2050 Wealth Partners a virtual, fee-only comprehensive financial planning firm dedicated to serving first-generation wealth-builders, entrepreneurs, and thriving professionals. Rianka also hosts 2050 TrailBlazers, a podcast aimed to address the lack of diversity in the financial planning profession by engaging industry experts and leaders in conversation.
As an award winning successful, millennial Certified Financial Planner professional, Rianka offers a unique perspective not only on the current state of the financial service industry, but on how to stay relevant in an ever-changing world.
Rianka serves as a member of CNBC’s Digital Financial Advisor Council and CFP Board’s Diversity Advisory Group, is a Forbes Personal Finance Contributor, and has been recognized for her accomplishments and leadership within the industry by leading publications and organizations such as Investment News’ inaugural 2017 Women to Watch Rising Star and Wealth Management’s Ten to Watch in 2018. She has been published in PBS NewsHour, Forbes, USA Today, Black Enterprise, CNBC, Women’s Health, and more.