Investing is for the long term ONLY
Welcome to day 10 of the January bootcamp. So are you ready to start investing? If you haven’t set you budget, paid off your high interest debt and decided on your goals, then you may need to go back and revisit days 1 – 10.
So when is the best time to invest? The answer is NOW. No matter what the state of the market is, it is better to be in the market than out. BUT you must be investing for the LONG TERM.
Why do you only invest for the long term (10/15 years plus)? Because the markets are VOLATILE and no one can predict them not even Warren Buffet! Instead he simply invests wisely for the LONG TERM, hence why he and his clients are wealthy. Markets may go up this year and down next and you need to able to keep your money invested through a downturn or multiple downturns because markets will rise again and you HAVE TO be there for the rise.
But if you divest (ie pull your investment out) during a downturn or too early or when a market is about to rise, you will lose. So if you have been through the budgeting process and understand how much you have to save for the long term, then we can get moving! Remember the long term should be 10/15 years plus in order to weather volatile markets. So you should have your short term savings (up to 5 years) for your debt payments/emergency fund, your medium term savings (5-10 years) for say your house deposit and your long term savings for your retirement.
Compounding – this is also super important. If I invest €100 today and my investment goes goes up by 10% this year, by the end of the year my investment will be worth €110. If I continue to invest and the investment rises by 10% again you are basically earning interest/gains not only on your original capital BUT also the gains from last year. So you are now due gains/interest on €110 so your investment is worth €121 in the end of year two. This is called compounding, the earning of interest or capital gains on the gains from previous years.
So today’s first step is to train your brain to invest for the long term now and stay invested through periods of volatility (ie the market going up and down).
Tomorrow – risk and cash