For Star Trek fans, you may remember the movie Star Trek: Insurrection that dealt with immortality. The plot doesn’t really matter, except that it portrays the thought that living forever is a good thing. This reminds me of the “nows” or “laters”.
If you could live forever, would you do everything you possibly could do “now” as quickly as you could, or would you delay doing anything since you could always do it “later”. In other words, would you be a doctor this year, a lawyer next, a construction worker the time after, etc., etc., or simply delay any of these things until “later”? More importantly, what does any of this this have to do with investing?
Let’s assume you came into some cash, either from an inheritance, a bonus, or some other “liquidity event”. Given the market environment today, what would you do? Of course, it mostly depends on what your investment goals are, but even if you know what your goals are you still need to decide on the timing, i.e., “now” or “later”?
I wrote a blog post way back in February 2020 that dealt with this topic in some detail and is worth a re-read (https://www.dattilioash.com/our-blog/2020/2/24/invest-all-at-once-or-over-time), but given today’s market dynamics it makes sense to think about this again.
After the trouble we have seen in the market since January, it seems like everything is oversold and there is the potential for a rebound. For example, per the chart below, since the beginning of this year almost all the broad indices are down – a lot, including bonds! S&P 500 (IVV) is down -16.0%, small cap stocks (SCHA) are down -18.7%, emerging market equities (SCHE) are down -14.4%, and investment grade corporate bond (LQD) are down -12.8%! And also, near term volatility is high at over 20%!
Though there are no guarantees, putting money to work in this environment due to the pullback certainly feels like a good entry point. We must remember, though, that risks in the economy still exist with the potential for continued inflation, supply chain disruptions, rising interest rates, and a weakened slower growth economy impacting corporate profits.
Even if you have a high tolerance for risk and have a long time horizon, there continues to be a large amount of risk in the markets that is prudent to avoid. For a lump sum of new money that is significant to your overall wealth, I recommend entering the market slowly over a 6-month time frame. Operationally, we can identify the lump sum amount and we will initiate a transfer of 1/6th from your bank into your investment account over the next six months to get invested. For smaller sums we can get invested more quickly.