Is now a good time to invest?

02/25/2021

"Have you ever seen a child standing at the edge of a swimming pool?" The child is willing to jump in but also fears to take the plunge. It is often the same with novice investors.

There is always an argument to be made not to invest. The conflict in the Middle East, the government debt that got out of hand, the economic slowdown in China, the falling oil price, and so on. Emotions and assumptions of the investor play an important role in this. The emotion consists of the fear of making a wrong decision. Suppose the investor steps in and prices fall, the investor could regret his decision to invest. The assumption is that the investor believes that there is a perfect time to get in and that this can be determined in advance.

Of course we cannot and will not deny that there is a perfect entry point. There is always a moment when prices have bottomed out and that is of course the perfect entry point. There is also a perfect selling moment when prices have peaked. The truth is, unfortunately, that determining the perfect entry point and perfect selling point is impossible. If it were that simple, millions of investors would take advantage of it and make an incredible amount of money. In fact; the parties that make money from 'timing' are those who write books about it or give signals when an investor should take an action.

The media is only too happy to respond to this. We regularly see bold statements about the expected direction of the market. We will give an example. Suppose you read on a website: 'Gold miners interesting again?' ... Your interest is awakened and you are reading the article. At the end of the article you will read: 'But as mentioned earlier, the fact that large investors value (government) bonds and currencies less and less, a small turnaround will cause a price explosion for gold mining shares. And we haven't even mentioned the Chinese buying up all gold mines left and right on this earth. Some risk but with some staying power we think the gold mining sector can be a good investment.' There is then a realistic chance that you will decide to follow this 'disguised' advice. We can assure you that you will be sorry about the purchase. The price of gold has since fallen in value by more than 35% and the price of gold mining companies by 70%! If you were to ask the relevant author for an explanation, he will rely on the small letters below the article: 'The published analyses are intended as background information on the financial markets and do not constitute investment advice or a recommendation to make transactions. We do not accept any liability for any incompleteness, inaccuracy or consequences of information presented in the analyses.'...

Suppose you read the following "advice" :

'Sooner or later, the real value of the emerging markets will surface again. This process can already be seen to some extent in China, where the brutal sell-off has now given way to stabilization and a reversing trend. Today Brazil and India are the bargains among the BRIC countries. Be contrarian and act accordingly!'

OR

'In normal circumstances, the markets would correct, given the accumulation of warnings, with the oil market now joining. But financial markets can continue to act irrationally for a longer period of time. Unfortunately, it should also be noted that if the blow follows, it can hit much harder than originally anticipated. Make sure you have a solid cash position in your investment account, which could come in handy.'

An investor who would have followed the first 'advice' would have noticed that the current price of Brazilian stocks is still 34% lower than when the advice was given. India, on the other hand, has risen, and the investor who would have followed the second advice and decided to sell some shares - just in case - would have noticed that the MSCI ACWI index has since risen by more than 36%.

These examples show how unpredictable the markets are and how dangerous it is to anticipate them. We see such articles every day. Whether the articles come from investment websites or analysts, they are merely opinions. Expectations that science has so often shown that flipping a coin has a better chance of success. But these opinions can cause investors to take enormous risks with their assets, wait to enter or decide to exit the markets. The person who gave the advice does not care. His income does not depend on your investment performance!

The truth is that for medium to long term investors it all hardly matters when starting to invest. Much more important is how an investor's capital is diversified over bonds and shares, in such a way that the chances of achieving financial targets are optimised. An investor will rarely invest 100% of his total assets in shares. Depending on the risk profile, part is invested in safe bonds, resulting in a portfolio that matches the personal risk tolerance. A good advisor always plays a crucial role in this aspect of investing. And that is another reason to choose expatwealthatwork!

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