Over the past few years, we have all heard the doom and gloom stories brought out by the media about the volatile stock market movements and widespread investor losses. Yet, while the market has experienced some up and down swings, the truth is that now may actually be a great time to invest.
Bargain prices are abundant everywhere today – not just on consumer goods like clothing and electronics, but also on big ticket items such as real estate and stocks. It is truly a buyer’s market. So why is it that when share prices of companies go on sale, investors tend to back off?
It has often been said that many fortunes are made during difficult financial times. Whether you are an experienced investor or just starting out, right now is a perfect time to invest. Here are just some of the reasons why.
Build Wealth
Certainly, one of the biggest reasons people invest is to create wealth – and it’s never too late to begin regardless of your current age or starting point. The key is to go with investments that will help move you forward in the financial goals that you have, weather that is to retire early, to purchase a new home, or simply to give you peace of mind in knowing that you have a financial cushion there when you need it.
Bargain Prices – Everything Is On Sale
Due to the volatility of the market, there are many U.S. companies that are selling at bargain prices. In fact, roughly seven out of ten companies that have reported earnings so far this year have beaten their profit estimates – and that’s great news for investors. Here again, a bargain really isn’t a bargain unless you need it. So, take care to properly research which companies are priced low based on poor long-term outlook and which have good foundations and are truly selling at a bargain price. These will be your winners.
Create An Income Stream
Investing doesn’t always mean trying to find the home run winners in terms of growth and increased share prices. It can also provide a way to create income, especially for those who are approaching retirement. By putting funds into stocks with good strong dividends, investors could create a win-win situation and end up having the potential for both current income as well as long-term growth.
Keep Up With Inflation and Maintain Purchasing Power
Although retirement may be a long way away for some investors, keeping up with inflation should be a concern throughout your entire investing life cycle – and storing cash in low interest savings and money market accounts will actually put you behind the eight ball when it comes to staying ahead. In fact, by doing so, your cash is essentially losing value each and every day.
The United States Labor Department reports that consumer prices are rising at roughly a 3.8 percent annual rate. What this means is that money that’s only earning 1 percent is in reality losing 2.8 percent in purchasing power. This is a definite incentive to allocating at least some percentage of assets into investments that have high growth potential – especially since the average annual stock market return over the past 25 years has been over 11 percent.
Allocate Assets to Lay the Foundation for Success
Everyone knows that putting all your eggs in one basket is never a good strategy, and the same holds true for investing. All cash may seem safe – especially in hard economic times – but overall it is a very risky way to go.
The choice of asset allocation that an investor makes is the single largest factor that influences the probability of their long-term success, and statistics have shown over time that cash and cash equivalent investments have returned the least amount over the long term. Safer assets like cash are important, but they need to be mixed in with other investment vehicles that offer the potential for growth. Otherwise, investors actually move backwards.
Some U.S. Sectors Are Thriving
Regardless of the vast amount of negative financial news, there are a number of industry sectors in the U.S. that are thriving. Many of these are in or related to markets that actually profit during inflationary times.
One such example companies such as food and agriculture related businesses that have a focus on feeding the farm industry. These businesses are seeing vast benefits due to their sales of higher priced soy beans, corn, and other types of grains to food companies as well as to consumers. By playing on inflationary trends, there is the potential for profit – even in a down economy. When considering this investment strategy, think of industries and companies that continue to move forward in selling their goods and services regardless of other surrounding economic factors.
Some Non-U.S. Markets Are Thriving
Even with the current U.S. recession fallout, there are many emerging markets overseas that can provide excellent investment opportunities. Top ten economies like China and India possess positive signs that investments in these countries could be profitable.
One such factor is that the savings rate in India stands at the 35 percent mark. What does this mean for investors here? First, most citizens there have been able to avoid the temptation of heavy borrowing for consumer items such as homes and cars. The result of this is that – even with the unsteady global economy – consumer spending has been steady. In addition, the country’s exports are expected to increase by 15 percent over the next several months, and could even double to areas such as Latin America and Africa.
So, although stocks in India have been hit fairly hard over the past year or so, they could be poised for tremendous growth over the long term – giving investors a perfect time to establish key positions in funds that are invested there.
New Regulations Could Level the Playing Field
For investors, new regulations could actually level the playing field in terms of products that are offered by financial services firms as well as a greater level of transparency. For example, companies wanting to have their shares traded on national stock markets must disclose information regarding their activities.
This means that investors will get a much clearer picture of the true risks of investing in certain products – before making the decision to do so. This up front knowledge will help investors in making better decisions with regards to both the risks and the rewards of certain products.
History of Rebounding
Stock market history has shown that over the years, the S&P 500 index has earned returns of over 3 percent during recessions and over 28 percent in the three years after the first signs of those recessions. What does this mean for investors today?
Although past performance is no guarantee of future results, these rebounds have indicated that the market does in fact have the ability to weather the storms – and as long as investors are invested in the correct areas, they should be safe enough from recessionary effects to obtain portfolio gains no matter what the overall economic conditions are that surround them.
Stay On Track
Oftentimes, investors simply need to invest in order to stay on track with their financial goals. Hoarding cash – even at a small 1 or 2 percent rate of growth – will likely not get you to where you want to go. All portfolios need something that will give them a jump, and moving funds into vehicles that have the potential to outpace inflation and keep you ahead of the game is just the ticket.
It is important to regularly review and monitor performance, though, because there will be times when changes are necessary. Don’t let short term fluctuations completely throw you off course. Any long journey will require some detours, but staying on track is imperative to getting to the desired end result.
The Bottom Line
Investing, like most other significant accomplishments, takes a plan. Investors can’t let the negative media stories dictate their risk tolerance, cash flow, or investment choices. Investments made based on reaction to short term news rarely pay off. On the other hand, neither will hiding in the corner with just cash. What is important is to mind the specific goals that you’ve set – both for short and long-term needs – and to remain rational, unemotional, focused, and fully invested.
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