When to start investing

Once we’re clear why we should invest and how we should do it, the next question that usually comes up is when we should do it. At what point. Is now a good time, or should we wait a few months because the stock market is expected to fall or property prices will be lower when the bubble bursts?

The easy answer, of course, is to stop overthinking it and start now. That the best time was yesterday, and the next best time is today.

But that isn’t always true. And I’m going to explain why.

The two dimensions you need to consider

Because the timing, in this case, depends on two variables:

• When the market is at a good point.
• When it is a good time given your exact circumstances.

And the curious thing is that it is difficult for both to line up.

So then, do we do nothing?

No. We invest, but knowing that it is extremely difficult to do it at the perfect time.

I’ll explain why.

Looking for a good time in the market

This is what we would all like, but it is extremely difficult, because the market, broadly speaking, is unpredictable. 

If you don’t believe me, just look at how index funds, which simply track the market without stopping to decide whether things look good or bad, consistently outperform actively managed funds (the ones whose managers decide what to buy and when).

That is why there is a very true saying in English:

Time in the market beats timing the market.

What this means is that, over the long term, spending more time invested delivers better returns than getting the exact entry point right.

That is why the best time was yesterday, and the next best time is today.

And yes, if you invest just before Covid (as I did) or the 1929 crash, it will take you much longer to recover than if you invest just after a major fall.

But there are ways to reduce that risk, at the cost of some potential return, of course.

For example, the best way to reduce it is to use DCA. In other words, instead of investing all the capital you want to invest or have available in one go, you invest periodically, which limits the risk and averages out your purchase price.

In short, as far as the market is concerned, invest as soon as possible. Either in a lump sum (more risk, potentially higher return) or on a regular schedule.

In this link I gave you an example of how time affects invested money through compound interest , which illustrates the point pretty well.

Your personal situation

The previous variable was simple and barely changed the plan. This one, however, can—and should—make a difference.

Because no matter how much you want to invest or how convinced you are that you should, your circumstances may mean you shouldn’t.

And why, if money sitting in the bank keeps losing value?

Because of what I explain in this step-by-step article on how you should start investing.

Investing—actually putting the money in—is the final step of the process if you are going to use DCA. If you have a lump sum that you want to invest all at once, that is different; but if, as I recommend, you want to go gradually, first you need to:

1. Know your savings capacity, because that will determine your investment capacity.
2. Know your monthly fixed and variable expenses and split them into needs and wants.
3. Use that to build your emergency fund.
4. Define your investment goals (time horizon, risk).
5. And choose the right assets for them.

And only then, after following those steps, is it when you actually start investing.

Conclusions and next steps

As you can see, of the two variables that affect when to invest, only your personal situation should really make you hesitate, and it may justify delaying the decision if you have not yet met certain requirements.

This does not mean market timing has no effect. Of course it does, but you do not control it. So the sensible thing is to focus on what you can control, knowing that the sooner you start, the better your long-term returns are likely to be.

I hope this article has cleared up a question we have all had before getting started.

If you want to go a little further, I invite you to continue with the next article in the series:

1. Investing from scratch: where to invest your money.
2. Types of assets you can invest in according to their role in the portfolio.
3. How to buy assets: investment vehicles.
4. Investment platforms: where to buy investment vehicles or assets.
5. Risks and guarantees of investing.
6. My investment system.
7. Wealth: how to grow it, protect it and pass it on.

And the extras:

1. How to start investing: the essential steps.
2. When to start investing.
3. How to make extra money.
4. How to save money.