When is a Good Time to Invest in 2022?
***Disclaimer – I’m not a financial advisor, just a normal guy with financial success. The information shared here is purely for educational purposes only***
Did you know that relatively small percentage of the people in the world owns most majority of the wealth? To be more precise, around 10% of the world’s population owns 76% of the total wealth. If you live in one of the western nations, chances are you are in the or close to the top 10% of that population.
There are many complex reasons for why this happens, but one of the biggest reasons is that high net worth individuals typically own very valuable assets, and lots of it. In this article, we will focus on the stock market / retirement type of asset and talk about why now (2nd half of 2022) to invest in the market.
1. As the time of writing this article, the S&P 500 is down 17% for the year
Some investor has the simple philosophy when it comes to investing. Buy the dip and sell on the news. It’s not a bad way to invest. Although if you are a long term investor, you would simply buy the dip and buy some more if there’s ever any more dips.
S&P 500 is down 17% for the year, meaning you are getting a nice solid discount if you buy stocks right now. Most long term investors and expert expect the stock to bounce back eventually. Sometimes in just a few months and sometimes it could take 12 months or so, but stocks always bounce back eventually.
Not only does stock will eventually bounce back, it will bounce much higher when it does bounce back. Right now, inflation is out of control and raising interest rates by the Federal Reserve hurts the investors so the market has been very volatile.
But we can all expect the stock market to bounce back at some point and those that are patient will reap a very sizable reward. Historically, S&P 500 has average 11.88% return per year since its inception in 1957.
2. Some of the best years occur after a down year
If you look at S&P 500’s historic data, you will notice that there are a lot of green (positive return years) than red (negative return years). After 65 years and counting in existence with almost 12% average returns, you can expect similar trend to continue going forward.
Of course there are absolutely no guarantees when it comes to investing, whether that’s in stock, real estate, crypto, or any type of business, but history is typically a good indicator of what to expect going forward. No expert or any advisor can tell you exactly how the stock market is going to act, because no one has any control over this thing, but they could tell you whether it’s a good time to invest or not.
I talk to my advisor all the time, and he puts it this way. You can expect your money to grow whether you put it in now, when it’s down another 5% or when it goes up 10%, because you know that in the long run, it’s most likely going to work out in your favor in a big way.
Now, if you are close to retirement and you want to balance your risk vs. reward, then it’s a good idea to diversify some of the investment into bonds or other safer investments. But if you are young and have years to wait on it, then they would tell you to take the riskier approach go majority stock, because you will get a much better return in the long run.
If there are practically no bad time to invest (because you’ll win in the long run), then a down year is even better time to invest. So with the market currently being down 17%, it’s like getting a 17% discount that will work in your favor in the long run.
3. Inflation is eating away your money
Inflation in a typical year is 2-3%, but 2022 is not a typical year. It’s more than triple or quadruple the normal inflation and threatening to top 10% for the year. Even in a normal year, if you’re not making at least 3% on your money, you are losing money.
That’s even more so the case this year, if you stand pat and don’t do anything, you are getting relatively much poorer than the rest of the world. The wealthy ones are constantly invested with their wealth so that it grows on its own.
Of course you should be setting aside cash for the day to day expenses, but too much cash can be a bad thing in times like this. You want to strike a good balance of having enough money to do what you need to do plus some emergency funds, and having the rest invested in assets that will appreciate over time so that your wealth is constantly growing.
Times like this you want as much cash working for you as you possibly can. Though we don’t know what the future holds, you can expect 25-30% return on investment every year, which is precisely what it’s possible here (or even more).
No one know when stock might return to the previous level and leap to new highs, so your best bet is to not sit on the sideline when it happens. Half of investing is actually psychological. Once the stock starts running up, investors might be hesitating to put their money in, fearing the stock might pull back and they would miss a better entry point. Most experts recommend just riding through the highs and lows and add more money when the market is dipping, because no one knows exactly how the market is going to behave.
In Conclusion
When stock pulls back or when major events hit the world that cause the stock market to tumble, that’s usually where wealth transfer occurs the most dramatically. Times like this could be an opportunity of a lifetime if money is invested correctly.
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***Disclaimer – I’m not a…