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Why timing the market might not be your best option right now..

| March 26, 2020

Why timing the market might not be your best option right now..


Yesterday I was talking with a friend and this topic came up. Should they invest the money they’ve been saving up for a new truck in a few years or hold tight for now?


Historically, we’ve all learned to buy low and sell high…a theory that could largely benefit millennials and other young investors who are debating dumping large savings into their accounts to capitalize on current volatility. But how much is too much to dump in? And when do you do it?


If you’re saving up for a large life purchase such as a new vehicle, home or wedding, the answer is dependent on time. If you plan on putting a large sum of money to any of these in the next year or two, DO NOT invest all of your savings. While the market has always stabilized and sustained growth after recessionary and pandemic-like causes in the past, we are living in uncharted waters by way of time. The COVID-19 pandemic could turn around in 3 weeks, 3 months or a year plus – nobody knows.


Therefore, timing the market is going to be based on luck in this situation. There will be up-days and down-days; until the lowest day has passed, we won’t know that was it. We can watch the case numbers grow then dwindle – but the theme by and large with COVID-19 is that we just don’t know.


What we do know is this: at minimum, you should be holding the amount you are comfortable in non-invested savings for emergencies, whether that adds up to the textbook six months of pay saved or not. If you’re not working during the mandated shutdowns, this number may be higher for you with the uncertainty of a next paycheck.


We also know that now is a great time to be making your 2019 and/or 2020 IRA and ROTH IRA contributions or adding your tax refunds to your individual or joint accounts. From there, dollar-cost-averaging your funds in over the next few weeks (or months) will allow you to take advantage of the continued volatility in the market until it stabilizes. With dollar-cost-averaging you are not timing the market for a miraculous best price, but you are taking advantage of the average price you purchase at over a sum of buys at different high and lows.


Additionally, you may want to reallocate your 401(k) and other retirement plan selections to include more equity than bond purchases. Take advantage of the low prices in the market, again dollar-cost-averaging in as you purchase new shares every two weeks when paid. While this reallocation is wholly dependent on your risk tolerance, it’s worth a discussion with your advisor to ensure your long-term goals are being considered.


As always, our team is here for you during these trying times, and we hope to see both our client family and world in a more unified and healthy place once we all get through this. Stay safe out there!