Investing in a Bad Market 101
What to do when you're new and things are scary out there.
I had a really interesting conversation with a good friend of mine the other day. It went something like this:
Them: “I’m finally at a point where I’m out of debt and have money going into my savings. I don’t want to throw money into the stock market right now because everything keeps going down… is this a good strategy?”
Me: “Nope.”
Before we go into any more detail, I want to note that my experience is limited, not professional, and (of course), should not be considered financial advice in any way, shape, or form. I’m just some dude on the internet.
Now, for the not-advice.
Understanding how market conditions affect strategy
If you’re new to the stock market, chances are this is the first time that you’re experiencing a difficult market, and the headlines about how everything is going down in flames are making you a little queasy. In fact, you might be feeling suspiciously similar to this guy:
And that’s okay!
Sensationalism is one of the quickest ways to get attention on the internet, so it’s natural to think that things are, like, real bad.
But this happens.
It’s happened before, it’ll happen again, and there is no way for you, as an individual, to control it. Sure, you can adjust and rebalance and all that fun stuff, but there are some dead simple lessons that you can employ before this point, just to get started.
#1: Don’t time the market
It’s been said time and time again. And a few more times after that. Stop trying to time the market.
Don’t hold out while things are bad and get started when things start to improve. Don’t put more in when market conditions are better.
Just. Stop. Doing. This.
Chances are, you won’t be that good at it!
Unless you’re ready to commit all of your time and energy to researching the market and picking up all of the quantitative & technical analysis skills needed to even have a hope of timing things somewhat correctly, it’s best to ignore a lot of the externalities happening.
Your superweapon?
Dollar Cost Averaging.
Pick a strategy, pick a schedule, and stick to it.
Say you want to put a piece of every paycheque into a basket of investments. Every time that paycheque comes around, dump the piece in.
Don’t think about the stock price, don’t think about what’s going to happen tomorrow, and don’t read the millions of “now’s the time” Discord spambots that want you to speculate.
Not convinced this works? Take a look at this.
You miss a day, you leave a lot on the table.
You miss a few, and you might as well not be playing.
#2: Leave your emotions at the door
I said it earlier: it’s easy to be scared when sh*t feels like it’s hitting the fan (or when you’re told this explicit thing… multiple times). But those fears have to be put aside - there’s no place for them here.
As an investor, you’re paid to be calm and wait.
Right now, you’re being fed messages about how scary the stock market is, how everyone is losing money, and how you will too unless you stockpile cash under your mattress.
Well, bad news.
If you aren’t investing that cash money, you’re losing it.
We’ve all been feeling the aggressive price hikes around us as a result of inflation, but do you know what the numbers actually look like?
The Canadian Consumer Price Index (CPI) has risen 8.1% since June 2021… the largest year-over-year change since 1983.
This means that, one year ago, you could have put $1,000 into your bank account, thinking that it’s safer there instead of in the market. But instead, that $1,000 is worth $981.67 now.
By letting cash sit in your bank account, you are losing money. Each year that this happens, you’re compounding your losses.
But you don’t have to be - you can find relatively safe investments that return you nice, juicy dividends year-over-year, so that you’re turning your money into more money.
That sounds better, doesn’t it?
#3: Don’t be scared to mix strategies
If you’re like me, you love the high-octane (sometimes punishing) world of investing in venture capital and small-cap companies.
But I’ll tell you right now, this is a great way to win big and lose big.
If this isn’t your exact flavour of doing things, then don’t be afraid to mix your strategies and combine some interest-based investing with some I-want-to-reliably-retire-someday investing.
Either do enough research so that you can make a comprehensive strategy around your investing (types of companies/industries, how closely you want to track indices, your time horizon, what will cause you to pull investments or cash out, etc.) or, simply, find a professional.
If you decide to split your investing behaviour into:
90% safer stuff, managed by a professional
10% high octane, independent investing
Then do it! As you become more experienced, have any really high-conviction companies come around, or simply find that you have more interest in independent investing, you can adjust this ratio and see what feels right to you.
And that’s all for now.
Let me know…
How’d you like this article?
What stood out to you? What made you hate me and think I’m a big dummie? Let me know!
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If you have any questions or comments, let me know and I’ll factor it into my writing future!
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Necessary Disclaimer
This is for legal reasons, so I don’t lose my pants over a lawsuit from an angry rich guy.
I am not a financial advisor and nothing I say should be interpreted as advice. I repeat, not advice. Everything I say should probably be written off, for the most part.
The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by me or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.
All content in this post is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing in this article constitutes professional and/or financial advice, nor does any information in the article constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information in the article before making any decisions based on such information.
Pls don’t sue me xoxo.