Despite the market volatility, stick to your plan
Imagine there are 3 siblings (José, Jorge and Anna) who decide to invest in a portfolio with an identical profile. Their plan is to invest an initial amount of 10.000€. In addition, they are planning to invest part of their savings on a regular basis.
Jorge is determined to invest 500 € every month no matter what happens. José intends to do the same but instead of investing monthly; he will invest when he understands the market is right, in other words, when the quarterly return is positive.
Anna also wants to invest regularly like José. Her desire is to include some flexibility in the investment process. Unlike José’s strategy, Anna’s method is applied with predefined parameters: invest in any period but more or less money depending on the market situation. The plan is to try to spend more money when the market is cheaper.
Multiple studies prove the fact that Jorge’s returns will soon exceed José’s and profitability curves will spread quickly in his favour because even though the market is suffering falls Jorge invests regularly. Therefore, ignoring the market and consistently investing his savings regardless of the outcome, allowed Jorge to buy more for less and add further profitability to his portfolio.
On the contrary, José will face several problems by investing only “at certain times”. The decision whether to invest or not, in José’s case, depends on his own judgment which can be highly influenced by his state of optimism and pessimism as the market evolves. The truth is the market can’t be predicted: experience has shown us that it is better to be inside the market than outside of it. Investors with no discipline often can’t overcome their mood and end up not investing. Missing the best moments in the market is a risk you take while being outside of it. For example, if we finally missed all the best moments in last 20 years we would had failed to win 50% of the market’s revaluation in that period.
Consequently, our recommendation is clear: define a periodic investment plan and invest no matter what happens.
Anna’s strategy is another option to take into consideration: presetting parameters that clearly accelerate our inversion or decelerate it according to the magnitude of the fall (just the opposite of what José did).
Unlike Jorge, Anna’s proposal is to optimize her investment plan: invest higher amounts when there’s falls (so she can buy “cheap”). However, her idea is to continue investing no matter what happens (with a variable amount). This is a more complex possibility (it means one has to guess the likelihood of the falls and organize the investments according to this) that can increase in a greater way our returns, especially if we successfully distribute our investment potential, appraising odds and opportunities.
There’s no need to complicate our plan. Simply follow Jorge’s plan. Get enough nerve up to invest whatever happens, even if the market situation isn’t the best. History shows that markets reward consistent and disciplined investors.
To be committed with a preset automatic deposit is the way to avoid the temptation of trying to guess what’s impossible to predict: the best time to hit the market. In this way, we will avoid being paralyzed due to our emotions so that we can go on with the established plan: with time we will realize the benefits of it.
As a matter fact the world of investments has no secrets.
In other words, one of the secrets of investing is make a plan and stick to it no matter what happens.
Know your investment profile and begin investing with us as soon as possible.Time and discipline are the best allies for any investor. Inbestme combines optimal portfolios with ETF’s from different asset classes and markets. You can now become a successful investor starting from 10,000 €.