posted in: Building Wealth

Is it ever really a great time to invest?


One of the big questions we hear from investors is ‘when is the best time to invest’? 

The truth is there is no clear cut answer and no way to predict the future with absolute certainty, especially when it comes to share markets. Even the so-called experts regularly get it wrong. Just think about how off the mark many of the predictions about the property markets during COVID turned out to be. So, how should investors choose when to invest?

The world isn’t perfect – there will always be a reason or two not to invest 

Like any big decision in life, such as having kids, you can’t plan for the conditions to be perfect before taking a leap. Would having children be easier when we’re flush with cash and resources? Sure. Is that the way it works out for most people? No. 

The reality is there is no perfect time to invest. There will never be a time when all risks evaporate and all uncertainty disappears, creating the perfect conditions for investment. There will always be reasons not to invest – economic shocks, an energy crisis, share market falls, rising interest rates, the war in Ukraine, and inflation. If you choose to wait until the conditions change, there will simply be new and different risks to contend with down the track. 

Ultimately these risks shouldn’t deter you. So long as you invest for the long-term in solid assets, your investments will weather any short-term shocks.  

When it comes to timing, the external conditions are less important than the internal conditions. Your readiness to invest is a more important factor. If you have cash or equity that can be deployed into investing, then taking action is more important than being concerned with challenges of the current day – after all property and share markets have been safe bets over the long term.

The biggest risk of all is to do nothing – don’t let today’s salary fool you into not investing for the future 

When it comes to building wealth, the biggest risk you can take is to do nothing. Often people think they’re avoiding risk by not taking action until the time is ‘right’, but this can have serious impacts on their future wealth and overall retirement balance. There are a lot of Australians who are living a comfortable life earning a great salary today, but who haven’t thought through how they’re going to replace that income when they decide to stop working or reduce their working hours later in life. At worst, their money isn’t growing faster than inflation and they will actually be going backward as their purchasing power declines over the years.

Those that establish a wealth strategy early on are far more likely to achieve their long-term financial goals. With time on their side, their investments have time to grow (and fall and grow again) and they are more likely to make decisions in step with longer-term financial objectives. 

Example – Advantages of investing early 

The benefits of early investing are demonstrated in the following example. If you invested $500 per month into a high growth fund from age 25 you would have $1,000,000 at age 65. However, if you delayed this by 10 years and began investing the same amount at age 35 you would have less than $500,000.

The power of investing early is the fact that you’re getting compounded growth on a larger asset base over a longer term.

Assumptions:

  • Mortgage repaid in full
  • 7.09% return net of fees
  • Taxes income return at 34.5%

It’s about time in the market, over timing the market 

Have you ever looked back and thought, “if only I’d invested in property before the last big boom”, or “I wish I bought Facebook shares when they were under $20 USD a share.”

The common denominator for each of these scenarios is that had you taken timely action a decade or so ago, you would be reaping the benefits now. The overwhelming majority of blue chip property and share investments held over the long term will grow significantly. If you want to reap the benefits 10 years from now, you need to be investing today. 

How much do you need to retire – it’s more than the barefoot man estimates!

You may have seen the Barefoot Investor recently state that it is possible to retire on less than $1,000,000, however, the reality is that it depends on your expectations around lifestyle and future income levels. Below is an indication of what lump sum you need at retirement to repay an outstanding mortgage (assume $500,000) and generate a particular level of passive income.

Income Requirement p.a. Outstanding Mortgage Required Superannuation Balance
$100,000 -$500,000 $1,347,000
$150,000 -$500,000 $2,021,000
$200,000 -$500,000 $2,694,000

Assumptions:

  • Assumed $500,000 mortgage repaid in full
  • 8% rate of return for investment portfolio (includes income and capital growth) 
  • 3% inflation
  • 0.90% investment fees
  • All funds in pension phase and nil tax nil assumed 
  • Balance is zero at age 85

The above numbers assume a retiree wishes to live off their investments and drain down their capital by age 85. It could be possible to retire with less and eat into the capital faster, however, this strategy is severely dependent on how long someone lives post retirement, as the more capital they draw down over time the faster the balance will be extinguished. If someone was hoping to live longer than 85 or leave assets to their family on death, then larger balances would be required. 

If you would like to review your personal investment strategy and how you’re tracking towards your long-term objectives, then please don’t hesitate to get in contact with the team at Montara Wealth HERE.

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