Friday, November 7, 2008

Market Timing and Opportunity

I hope that some of you who have been reading this blog for a while may be feeling persuaded to seriously start investing for your future. The questions that naturally follow are what should I invest in, and when? This first step is especially scary to take at a time of such great economic crisis as we see today. All but the boldest investors have been scared away from the stock market.

I am always reluctant to tell people specifically what to buy, or when to buy. Variances in the risk tolerance and the current and future financial needs of individual investors make it unwise to offer blanket investment suggestions. But I will go out on a bit of a limb here and point out that, historically, the darkest of times have usually offered the best investment opportunities. In other words, when everybody else is panicking and selling, investment prices get driven down, creating opportunities to invest at bargain prices.

This scenario certainly describes what is going on currently in world stock markets. The S&P 500, an index tracking the share prices of the 500 largest U.S. corporations, is down 40% from one year ago. Of course, there are real, legitimate reasons for stock prices to be declining (such as sagging corporate profits), and there is also the possibility that significant continued losses may still lay ahead.

I certainly wouldn't encourage anyone with a very low tolerance for risk to jump onboard this roller coaster right now, but please bear in mind that most of us have precisely the wrong instincts for buying and selling at the "right time". It is enticing to get onboard when we see that an investment has recently performed well, and it's scary to buy or hold on to an asset that has been losing money.

In general, I suggest resisting such instincts and simply investing what you can on a regular basis, then holding those investments for the long term, regardless of current market conditions. Don't try to gamble your way into the market all at once, but don't allow yourself to be frightened into inaction, either. There will never be an obvious "safe time" to buy, and if you wait for such a time to arrive, you will probably have already missed out on substantial market gains.

One more word of caution: please don't invest more money in stocks than you can afford to lose. Musicians especially need to establish and maintain a financial safety net before speculating on riskier investments, and the current recession may bring unexpected gig losses. Good luck navigating your way through this storm, and remember that every upheaval also brings opportunities.

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