One of the biggest questions investors have is when the best time is to start investing. However, no one is clairvoyant, so we don’t know whether the price will rise after purchasing an investment product. Fortunately, there are a number of other factors that can help you determine whether the best time to invest has come.
When you start investing, it also depends on the strategy you follow. In this article we look at how you can determine whether it is best to invest now, or whether you should wait a while to earn the largest possible return.
Start investing now or should you wait? #
In retrospect, the best time to invest always seems to have passed. Of course, it’s easy to look back and say you missed the boat. Nobody knows what the price of an investment product will do. No matter how volatile a cryptocurrency is, or how stable a stock appears to be, no one knows where the price is going.
So don’t drive yourself crazy with thoughts like ‘if only I had done this’ or ‘if only I had started then’. Instead, it’s better learn from historical events and try to apply them in the future. That starts by determining whether now is the best time to invest.
It is difficult to determine whether now is the right time to invest. The prices of investment products are constantly changing, and as an investor you want to buy such a product for the lowest price. That way you can earn the highest possible return on your investment (ROI).
However, one person has more money to spend and wants to take a greater risk than the other. That is why there is no answer that applies to everyone. It is better to look at different strategies, make a plan for yourself and then stick to this plan.
Following the crowd – FOMO #
Many people follow others. When they hear that the neighbor is investing in cryptocurrency, they buy crypto coins themselves the next day. We see that a large part of the people follows the crowd, while that is not always the wisest choice.
In general, we see that the majority of people invest as soon as the prices of investment products rise. They are afraid of missing the boat (FOMO) and get in quickly. When friends, relatives and neighbors make a profit from investing, they naturally don’t want to be left behind.
As mentioned, this is not necessarily a good idea. By investing in this way, you are not investing based on research or actual information that you have gathered. This is not investment advice, but in general, when the markets are down, the best investment moment has come. For example, Warren Buffett, one of the most successful investors in the world, stated the following: “Be fearful when others are greedy and greedy only when others are fearful”.
According to Buffett, it is best to invest when other people are afraid to invest. That could be a period of economic turmoil, financial crisis or during high inflation. Many people do not invest their money during these periods. When everyone is investing money, you should pay attention, according to Buffet. These are moments where he believes the market can turn.
What to invest in? #
Before you start investing, you must know in which products you can and want to invest in. Don’t worry about the number of options, because there are many different investment products. Among these products, the following are the most popular:
- Investment funds;
- Derivatives (options, futures, turbos);
- Raw materials;
- Real estate;
- Precious metals (gold, silver, platinum);
- Real Estate Investment Trust (REIT).
Dollar Cost Averaging (DCA) #
Dollar Cost Averaging, DCA for short, is a popular strategy among investors. Not only beginners, but also advanced investors follow the DCA strategy. The strategy means that you invest a fixed amount in the same product at a fixed time.
Follow your Dollar Cost Averaging, and do not deviate from the agreements you have made. This means that, for example, you always invest 250 dollar in Bitcoin on the first of the month. Dollar Cost Averaging ensures that it is always the right time to start investing.
The idea behind DCA is that you don’t have to take the price into account, and always buy the average price. If you want to start with DCA, you will have to follow a long-term strategy. DCA is not suitable for the short term.
DCA is an ideal strategy for beginners. It is not necessary to conduct research to follow DCA, and so you can still invest money. But many advanced investors also use DCA alongside another strategy. This is a way of diversification, which ensures that the risk of loss of capital is reduced.
Lump Sum (LS) #
Opposite DCA is Lump Sum, abbreviated as LS. Some investors think that this strategy works better than DCA. They claim that Dollar cost averaging will underperform lump sum investing for most asset classes most of the time. Let’s take a look at what Lump Sum is and how this strategy works.
If you follow Lump Sum, you invest large amounts without dividing them up, as is the case with DCA. It is therefore important for this strategy to determine what the best buying moment is. This is the only way to find out when it is best to invest. Because you invest a large amount, it is extra important to be sure of your business.
Research can be done by means of a technical or fundamental analysis. In a technical analysis you look at the price and price of an investment product. In this way you try to recognize patterns from the past in the present, in order to make a prediction based on this. Many people find performing a technical analysis very difficult. It requires a lot of experience before most people can successfully conduct technical analysis.
A fundamental analysis is seen as an easier investigation. Here you mainly look at various factors surrounding the investment product. Who’s behind it? What market is it in? Who are the competitors? What is the sentiment? You can make a prediction based on such questions. Successfully performing a fundamental analysis also requires a lot of time and experience, but is done more often than the technical analysis.
Investing during the dip #
Is the market currently in a dip? Many experienced investors choose to invest money at that time. There is no need to follow just DCA or just Lump Sum. You could easily combine these two strategies.
For the long term, for example, you could follow DCA. In that case, you invest a fixed amount per week, month or quarter. In addition, you put another amount in a bank account. You also do this monthly, making it similar to DCA. When the market is in a dip, you could invest this amount, for example, according to Lump Sum. In this way you reduce the average purchase price even more.
Of course, this is just an idea followed by many investors. Always decide to do your own research and follow your own strategy. Make sure you can substantiate your choices with arguments, and then write them down as well. If it goes wrong, you can see where it went wrong. Learning from your mistakes will make you a better investor.
When is the best time to invest your money? Unfortunately, no one has an answer for that. Everyone invests their money differently and follows a different strategy. Successful investors create their own strategy and follow it for the long term.
A commonly used strategy is Dollar Cost Averaging, where you invest a fixed amount at a fixed time in the same product. The advantage is that you always buy the average price and do not have to do any research. That is why DCA is ideal for the novice investor, although there are also a large number of advanced investors who follow Dollar Cost Averaging.
Lump Sum appears to work better, according to research, although it is difficult for many investors to follow this strategy. It is necessary to do thorough research to find out when the best investment moment has come. That is why Lump Sum is mainly used by the advanced investor who has a lot of experience.