As a licensed financial planner, I have been asked a number of investment questions over the years. What are the 5 most common yet often challenging questions on investment?
Common Question 1: Should I invest now or try to time the market due to X reason (i.e. Novel Coronavirus)?
No one can accurately predict what can happen next. Overall, more importantly than trying to time the market is your overall personal investment plan. This starts with your portfolio in a good asset allocation that is meant to be held throughout different economic conditions. This starts with investing based on your current funds available after allocating for emergency savings. Then, you will want to continue to grow your investments by investing regularly.
Over time your asset allocation will turn stale and no longer be as profitable, thus, you will want to rebalance regularly, typically every 6 months. This allows enough time for investments to gather some gains. While making sure that your overall asset allocation is not too far off that you are overly at risk with increased volatility.
Common Question 2: Should I invest a lump sum or stagger my investment?
Investing with a lump sum rather than trying to time the market generates on average a 2-3% higher returns. In the longer scale of things it would make more sense to be invested rather than not.
If you miss out the best X number of days in investing you are risking out on a significant amount of returns:
- Miss best 10 days in market: -15% returns
- Miss best 20 days in market: -40% returns
- Miss best 30 days in market: -55% returns