Should we invest or not in 2023?” This is one burning question that is tugging at the hearts of some investors. With the markets in a turmoil, what are investors supposed to do? Should they time the market? Should they Dollar-Cost Average (DCA)? Should they wait out till recovery when the bull run comes back? Let us dive into it.
time the market?
Should an investor time the market? It has been proven time and time again that it is almost impossible to keep catching the market bottom. Usually when the market bottom has passed would the investor then know that the market bottom is already gone. Timing the market is incredibly hard as it would take precise entry points on where to expect the market to bottom, the precise turning points on where the markets will recover.
Even if an investor can time those exact points, other factors like black swan events for example: Covid-19 Pandemic and the Russian-Ukraine War can ultimately catch the investor by surprise.
DCA?
Does the investor Dollar-Cost Average? This method has been proven time and time again that as the markets continue to go down, share prices become cheaper and cheaper. Think of this in the case of daily necessities. If the items that the investor uses on a daily basis (outside of the market), like food, water and energy, becoming cheaper daily. Would the investor buy more knowing that this is essential for survival in today’s day and age? And also knowing that discounts may not last forever?
The same principle can be used in the markets today. No one can predict the bottoming process and no one knows exactly at what level that the markets would turn around. The most ideal way for investors who want to do this passively would be to buy Exchange-Traded Funds (ETFs) that track the entire markets of certain economies. For example, the SPY for the S&P 500 index in the US market.
Wait till recovery?
Do we wait for recovery to start deploying? If the investor uses this approach, the opportunity missed would be far greater than the returns that would be gained. This is because at this point in time, share prices of the companies would already be rallying very fast and valuations may already be out of place. If the investor were to deploy the cash then, the portfolio will grow but the expected returns will be far lesser than the investor who has been consistently buying every single month or period.
To sum things up, each investor has their own investing style. There is no right and wrong but there is only best and better.
Invest safely!
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