Sky-high inflation, war, a bear market and uncertainty everywhere you look. Is now the right time to invest?
You may be watching what is happening in the markets and thinking, "What a stupid question? Heck, no." Not so fast. While I've got no special window into what the future holds, I can give you a framework to answer that question.
Determining the answer has little to do with current events or the markets and a lot more to do with you. In my mind, it is much more about your situation than any mark on a calendar, specific market conditions or hitting a certain age.
If you can answer these five questions with a "yes," then it may be the right time to invest.
Have You Got Some Cash?
I'm not talking about money to invest, but rather cash set aside in an emergency fund. While I like the idea of having the equivalent of at least three months of expenses set aside and think it's especially important in today's environment, I don't think you necessarily have to be all the way there before starting to invest.
Instead, ensure you have some cushion to respond to something bad happening without having to use credit. It could be a couple thousand dollars, but it's an important step and will help ensure you're not investing one month only to have to pull the money out the following month because your car breaks down.
How's Your Job Security?
Today, nothing is set in stone, but feeling pretty good about your primary source(s) of income and your ability to meet your recurring obligations is a prerequisite to beginning or continuing to invest.
Are You Double-Digit Debt Free?
In most cases, it doesn't make a lot of sense to direct your limited resources toward investments while you're trying to pay off debt carrying high-interest rates. No, you don't have to wipe out all your debts before you invest, but getting rid of 20-something percent debt is an investment in and of itself.
Have You Marked Your Multi-Year Calendar?
Remember, investing is a long-term proposition. Money you allocate toward this endeavor should be targeted at goals well into the future -- years, not days, weeks or months. And yes, that's why you can ignore those day-to-day news headlines. Your focus should be on building for a time well into the future.
Do You Have a Plan?
Know how much you're going to invest and when; I love payroll deductions into the Thrift Savings Plan (TSP) or other employer plans. Know your investment mix; target or lifestyle funds may simplify things on this front. And know your ultimate goals: What are you investing toward?
Look at those questions again. Absent are any references to prospects for the stock or bond markets, news headlines or expected investment returns. Instead, it's all about you and your situation. If you can say yes five times, there's a pretty good chance that now is the time to invest.
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