There’s Always a Reason Not to Invest

I met with a couple recently for their annual portfolio review. Nothing much had changed for them. They were comfortable with how the portfolio had behaved, happy with the mix, and the meeting was winding down when one of them asked the question I’d half been expecting.

They had $50,000 in a term deposit maturing soon. Markets had been going nowhere much for a while. Wouldn’t it make sense to roll it over for another six months, collect the interest, and put it into the portfolio once things started moving up?

It sounds prudent. But it’s a process mistake. By trying to win the next six months, you’re effectively not accepting risk. And you need to accept some risk in order to get higher long term returns. If you can’t accept the risk, you’re not going to get the returns. Your money becomes a melting ice cube, quietly losing ground to inflation and tax while it waits for the perfect moment.

So when you’re presented with risk, you need to actually accept it. Because the real risk isn’t a bad six months. The risk is you may never get invested.

Play it forward. It’s April and the term deposit has matured. If the market has gone up, it feels too expensive. You’ve missed the move, so you’ll wait to get in at a better price.

If the market has gone down, you don’t see a good price. You see a falling market. You’ll wait until it feels safe to get in. If it’s gone sideways, you’re right back where you started. Just win the next six months. Three completely different outcomes. The same answer every time: wait.

If you start to become a market timer in a sideways market, how are you not going to be a market timer in a down market? How are you not going to be a market timer when there’s greed in the market and everything feels expensive? It always feels like this time is different. You’ll find that every time is different. If you keep trying to win in the short term and keep reacting to newsflow, you’re not going to win in the long run. You’ll win the battle and lose the war.

Here’s what that looks like over 30 years. Imagine investors putting $10,000 into the US share market every year. One has perfect timing and buys at the lowest point every single year. One just invests on the first day of the year. One has terrible luck and buys at the highest point every year. And one sits in cash, waiting.

The perfect timer comes out on top, but only just, and nobody can do that in real life. The investor with the worst timing imaginable still ends up with over $1.7 million. The one waiting in cash ends up with around $410,000. Getting the timing wrong costs you a little. Not getting invested costs you almost everything.

Nobody rings a bell when it’s time to get in. A strong earnings season can push markets higher before anyone feels ready. Warren Buffett has made the same point for decades: keep buying steadily over time and don’t quibble about the price.

So the answer is simple. Start now, and dollar cost average your way in. A set amount at regular intervals, whatever the market is doing, and no reacting to the headlines along the way.

It’s not perfect. But it gets you invested. And 80% of the battle with investing is to get invested and stay invested. Most of it comes down to not reacting to newsflow, setting a sensible plan and sticking to it no matter what the news has to say.

There will always be a reason not to invest. The chart shows what it costs to listen to it.