Invest or not to invest, that is the question

 

With all the volatility in the market, individuals have been asking their investment advisors whether it is worth investing: Is it a good time to invest? What should I invest in?

These are legitimate questions and to answer them, I think we need to change the narrative and put the concept and the reason for investments in a different context.

Can we afford not to invest, with interest on savings at an all time low – 0.25% in the US and negative interest in the Euro zone, Japan and Scandinavian countries. Contrast, in the emerging markets, high interest is not necessarily good as the Central Banks are dealing with inflation pressure in these countries.

Timing – is it a good time to invest or is it a bad time? This is a hard question to answer, as no one has a crystal ball. The narrative here should not be and will not be about whether it’s a good or bad time in the market. The questions should be addressing every individual’s personal objectives and their time horizon – what are they hoping to achieve and how long are they willing and able to wait to achieve it?

Which brings us to ‘risk appetite’. Risk is a four-letter word, and like other less polite four letter words, it is hard to imagine living without it. Having said that, it is difficult to define risk as it varies from one individual to another – risk can mean different things to different people at different times. Added to this, if you ask people to define risk in regards to investing, they will relate investment risk to losses. However, the narrative here should relate to and go according to academia, Academic finance, which takes the mathematical route. To be more precise, in the most established finance model, the Capital Asset Pricing Model (CAPM), risk is not about potential losses – rather, it is measured by volatility or the fluctuation of the asset price.

What to invest in? The narrative here should address the principles of investments.

The first and most important principle is that individuals should be investing for the LONG RUN. What comes to mind is the take of Warren Buffet on the long view, where he said “ I buy on the assumption that they could close the market the next day and not reopen it for five years.” Choose Value over Popularity, choose companies with a Wide Moat, and create Good Habits like allocating a sum of your income to add to your existing investment. By doing this you will apply the “Dollar Cost Averaging Strategy”. Invest against the tide and remember to look at the market volatility as your ally and not your enemy. Also, remember that when the market falls, the media stokes investors’ fears.

In conclusion, I think we need to approach investment within the context of objectivity and what we are looking to achieve, and that any investing or focus should be for the long run. As for the current market volatility, the following metaphor, by Alan Belson, sums it up nicely: “Do you know what it’s like to invest for the long run while listening to the market news every day? It’s like a man walking up a big hill with a yo-yo and keeping his eyes fixed on the yo-yo instead of the hill.”

So to answer the question, invest or not to invest, it is no brainer I say it with confidence:

Invest & keep your eye fixed on the top of the hill.

The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.