There are many ways up the mountain top. The path you decide to take is up to you. The problem is most people send years analyzing, studying, and contemplating the how, rather than focusing on the now.
I was recently talking to a friend from one of the top business schools in the nation- an ivy league school. He comes from an upper-middle class family, and has a bit of money saved up. So naturally, he asked me my advice on investing now that he had a decent job at a big tech firm with a solid salary. I gave him some pointers, he seemed to injest it, and then he dropped this little liner on me:
Sounds good, but I’m just waiting for the market to hit bottom before I begin investing
My eyes began to blink rapidly as I tried to process the bombshell that was just dropped on me.
Listen, you’re smart. If you’re reading this post I know you’re intelligent, but look at this past recession. Not even the people who do this for a LIVING can predict market fluctuations let alone time the bottom of the market. What I’ve noticed amonst my peers is that they look at the market, look at all the choices (stocks, bonds, mutual funds, commodities), get overwhelmed, and instead of doing something they do nothing for fear of making the wrong decision.
They stare at the mountain wondering if the path they embark on is the right path. News flash: no mountain has ever been climbed by simply staring at it. You have to just start climbing.
The problem is that you don’t do this for a living. Other than an educated guess, you really can’t predict market bottom, market fluctuations, or market returns. In fact, despite the thousands of people on metaphorical wall street, only a handful of people in the world can consistently “beat the market.”
So what do I do?
By investing in the market as a whole, you can avoid losing large portions of your money to bankruptcies, fraud, or other risky propositions. By diversifying your portfolio, you eliminate some of the risk that comes with investing, and more importantly put your investments on auto-drive. Check out these lazy portfolios from Bogleheads.
The best way to invest in the market as a whole is in a Roth IRA vehicle, investing in index funds, mutual funds with long track records of growth, or life-cycle funds.
Set your investments to automatically deduct from your account or paycheck every month. Set it, and forget it. By starting young, and investing in the market as a whole, you will be taking solid steps towards your financial security as opposed to sitting idly by “waiting for the market to hit bottom.”
See you on the peak.
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