Timing the market is bad, but now is the time.
This article was initially published in a bleak period. The same is always true, though. The perfect time to invest for Financial Independence is always now.
There’s a huge sale going on.
Wages are up, unemployment is low, and the S&P 500 is down over 23% in 2022.
The market has rolled back the clock to 2020 pricing, friends. Now is a great time to invest in your financial independence journey.
If you are already working towards financial independence, you know “now” is always the time to buy for your future.
This year is an especially good time.
Time in the market beats timing the market.
While 2022 may be a great time to invest, with markets at prices not seen in over a year, you should not attempt to time the market. Don’t wait for the bottom to invest.
Instead, invest in a regular cadence. Before I left corporate America, I automatically invested with each paycheck. It didn’t matter if the markets were up or down. I invested — religiously.
Automatic investing is just about as passive as you can get with your investing. To reduce decision points and increase diversity, choose to invest in a low-fee index fund like the Vanguard Total Stock Index Fund (VTSAX).
Historically, the stock market has grown over the long term. When you regularly invest, you can reduce the volatility of the markets through dollar-cost averaging. This practice involves investing a consistent amount regardless of the market’s price.
When stock prices are down, you buy more shares and less when the markets are up.
Is a recession looming?
Here’s yet another scary headline on CNBC this June:
Morgan Stanley says recession would take S&P 500 another 15% to 20% lower
Recessions are part of an economic cycle. While they cost jobs and impact your immediate net worth, they are opportunities to buy at great discounts.
Experts don’t all agree that a recession is imminent in 2022. The US Federal Reserve has a limited toolset to control inflation. The tool is equivalent to a hammer. Raising rates can slow an overboiling economy and inflation spiraling out of control — 8.6% as of May 2022.
It’s challenging to slow the economy without causing a recession. The last time the Federal Reserve could slow inflation without causing a recession was in 1994. Inflation was far from out of control when the Fed raised rates to 5.5% that November.
Either the Fed will succeed in the battle with inflation, or a recession will stamp it out.
As a long-term investor, you will find great value for some time.
The biggest concern with a recession is related to job stability. The worst situation is to have a barn burner sale and no income to invest.
Multiple income streams can protect you during periods of economic turmoil.
US unemployment in May 2022 was 3.6%. There are more jobs than people at the moment.
If a recession hits, this will change.
There’s no guarantee that a future recession will not impact your job.
One way to protect yourself from lost wages during a recession is to increase your income streams. If you have a partner and are both employed, you have some diversity. Two incomes, especially in diverse industries, are better than one.
In 2008, I saw coworkers lose their jobs. You never know if you are safe when a recession hits. Sometimes you are lucky, and sometimes you aren’t.
Side hustles are also popular. It takes time to build a steady income stream from a side hustle. Don’t expect miracles and overnight success. This world rewards hard work. Don’t fall for the easy money stream stories people try to sell.
If you can find yourself in a stable industry and preferably with more than one income stream, you can take advantage of investment opportunities if a recession arrives.
Look to the future, not today’s stock charts.
It’s tough to disconnect your emotions as an investor.
However, it’s critical to do just that. Investing for financial independence is a life journey. You are not investing in getting rich overnight.
Instead, you are investing to fund the rest of your life.
You won’t be blowing 20% of your portfolio in a year. That discipline would put you in the poor house faster than any market decline.
It can be depressing to know that you were oh so close to financial independence, and then the markets tanked. You need to be able to look past that.
Realize that the road to the top isn’t smooth. Stuff happens.
In the long run, your investments will pay off. You have to believe in that to will yourself to continue to invest when every headline reads like the sky is falling.
Maybe check CNBC a little less often.
And let your automated investing roll on.
Wrapping Up
Read the headlines, and the future is bleak.
Stocks are down, and a recession may be on the horizon.
Look on the bright side. Stocks are on sale and may become even better values.
Don’t try to time the market, though. Just keep plodding along, making automatic investments each time you get paid. Use the power of dollar-cost averaging to help smooth the jolts of the market.
The word recession is scary. However, recessions are part of the economic cycle. Setting yourself up with multiple income streams can help protect you from a recession. Recessions impact jobs. If you can diversify your income streams, you increase your chances of minimizing the direct impact of a recession.
Assuming you can retain your income, a recession provides the best value for your investment dollar.
Stop focusing on all of the negative headlines about the economy and markets.
We all know times are not great. That doesn’t mean the world is ending, and we will lose everything.
Know your goals. As a financial independence investor, you are in for the long game.
Shut out the noise and invest. Now is always the perfect time to invest for Financial Independence.
