Invest Even When Afraid

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The US markets have set new highs. As of June 30, 2017, the S&P 500 Total Return Index is up 9.34% year to date. Foreign markets are doing even better with the MSCI EAFE Index of Foreign Developed Countries up 13.81% and the MSCI Emerging Market Pirce Index up 17.22% year to date.

That being said, investors are noticeably scared, because they know that the markets can go in both directions.

The stock market is inherently volatile, but it is also inherently profitable. Everyone would want to have invested as much as possible 30 years ago, even knowing all the so-called crises such as the stock market crash of 1987, the 1990 Correction, the Dot-Com Bubble bursting in 2000-2002, and the Financial Crisis and Crash of 2008.

Long term investing erases all this short term volatility.

A recent Investor Pulse study by BlackRock found that “Americans hold 58% of their investible assets in cash where is earns little or no interest.” This is sad. Investors should be more afraid of inflation than market volatility.

Investing right before a large downturn in the markets is unfortunate but not a mistake. Investing for your long term future is always good for the long term. The mistake may be leaving your money in cash.

Cash which is earning little or no interest is a guaranteed way to lose to inflation each and every year. Currently, you need $215.43 just to purchase the same goods and services that cost $100 thirty years ago. Put another way, your $100 from 30 years ago is only worth $46.42 today.

You can have some cash on hand. We recommend having the next six months of spending in cash if you are retired, and only two or three months in cash if you still have an income.

You should have some money in fixed income. We recommend having the next six years of spending in fixed income if you are retired or approaching retirement.

You should have the majority of your retirement savings in appreciating assets such as the stock market.

Yes, the markets are volatile and can experience significant short term drops. But those inevitable future drops should not stop you from investing now. The BlackRock study put it nicely when it wrote:

You can’t invest for the future in the future.

Don’t let your fear of the future ruin your future.

Photo by Gianandrea Villa on Unsplash

Follow David John Marotta:

President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.