There is always so much news about the wild swings of the markets.
Anyone who invests in stocks for the short term is taking on a huge amount of risk by betting on positive short term performance. But as we know, on any given day, markets have a fairly even chance of going up or down. There have even been the odd 10 year periods where stocks have been down.
That being said, investing in the stock market for short term gains is like being in a casino at times. A heck of a lot of luck is required.
Investing for periods of 10 years plus is not like a casino at all. It is calculated and your chances of coming out ahead are extremely good.
Two different people both investing in stocks. One for the short term, one for the long term. One is gambling, the other isn’t. So when people say stock investing is gambling, it can be. But it is not the stock market itself that is risky, it is the investors behaviour. With a long enough time frame, a well diversified portfolio of stocks is probably less risky than sitting in cash to be honest. The latter has a huge risk of inflation eating away your savings.
The short term investor is constantly checking the news searching for signals to buy and sell.
At the moment the news is all bad so many short term investors are currently out of the game. The long term investor is adding to their stash every month, buying stocks at a lower price.
The short term investor waits trying to time the bottom of the market drop. The long term investor isn’t waiting for the bottom. They know that no one can accurately predict the bottom regularly. They also know that everything will work out in the long run.
Many of the best days in the stock market are immediately after the worst days. By the time the short term investor is confident enough to jump back in they have missed out on the best returns. What if they jump back in and it is a false recovery? When will they get back out again? What if they think it is a false recovery but the market never drops back to the current position again? The market timer will always be on the sidelines, or forced to eat humble pie and jump back in at a higher price being living proof of the buy high sell low person that bought about the need for the saying “buy low sell high”.
Carl Richards wrote a book called the behavior gap which is a very easy and insightful read about how the majority of active investors perform worse than the index because of their behaviours. Greed, fear, buying high, selling low, hindsight bias and so on. The performance gap between the market and your actual returns being labelled the behavior gap.
Who knows. You may be one of the lucky few percent who outperform the index. And it is luck. Don’t kid yourself. Especially to consistently outperform the index, you would have to be in a overwhelming minority of people.
I can’t think of much worse than spending my days worrying about the ups and downs of the markets. Life is far too short for that. I have enough to worry about without adding soul crushing loss of money to that list. I’d rather limit my downside and upside, than not have those limits.
The same goes for the housing market at the moment. Many would be home buyers appear to be waiting for the optimal time to buy a house. Everyone is trying to time the bottom of the market.
The housing timer can end up just like the short term stock timer. What if the housing market in a matter of months increases in price beyond current prices? The timer has waited too long. Then there is a decision to make. Do they buy now that prices are rising as people are getting more interested in buying again forcing up the competition? Or is it just a short term increase before prices fall down again? If they don’t go with the former, they run the risk of being left out of the market altogether and not able to afford at the ‘new’ prices.
I don’t have the answers here to these short term questions. Anyone who says they do I think is kidding themselves. There are too many variables.
If it were my child looking to buy a house and could afford to do so and planned to live there for at least 10 years, I would just say do it. There isn’t much competition at the moment so they would have a wide range of properties to choose from. Interest rates won’t stay elevated forever in my opinion either. Many people make buying decisions based on current interest rates, but many mortgages are up to 30 years. It pays to think of your mortgage over a longer term and today’s rates are not going to be the same rates in the future.
But those are the two main variables for buying a house I would typically recommend using. Can you afford and do you plan to live there long term. If either of those has an answer of no, then now is not a good time to buy a house. If the answer to both is yes, then I would say now is a good time to buy a house.
Stop the fluffing about trying to guess what interest rates are going to do or which way house prices are going. The pros (Economists) are terrible at making predictions, so why do you think you are any better?
Already this year, the OCR is not going up as much as most people and economists were predicting.
Growth assets such as housing and stocks are long term assets. Short term movements should not matter as when you look back in 20 years and see your gains, it should look like a smooth upward line and you will likely not remember what happened in 2023. It will be a blip. A distant memory. What seemed extremely important at the time will seem irrelevant in 20 years.
What will remain heavy on your mind though, is if you miss out on the bottom and never get back in. That would be the real shame.
The great irony is that the more greedy you are trying to time the tops and bottoms is that the less well off you will be. Research has proven this time and time again.
So if you are in it for the long haul and have clear reasons and a long term timeframe for your investments, then get in the game. If you are unsure what type of assets you should be investing in for various goal timeframes, then get in touch with an independent financial adviser, so that you won’t have to spend your time worrying about the short term movements of markets. Good financial advice helps you to just get on and live your life without worrying about all these short term unknowns by investing in the right assets for your goals.
If you need an investment plan or recommendations , then get in touch today.
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here