I asked myself the question not without feeling a certain uneasiness: would there be a window to move a few marbles towards the stock market? In investment, wisdom dictates that we buy when confidence is at half mast, when fear sets in. I know, it may seem misguided to see a tragedy as an investment opportunity.
The major indices have been waning for three months now. Long before Russian tanks entered Ukraine, we were in the grip of rampant inflation, and impending interest rate hikes are weighing heavily on investor sentiment. Consumer price inflation shows no sign of abating, despite rising borrowing costs.
The war has added a thick layer of uncertainty, it has brought us into a zone of high volatility. Before the situation improves, it could get worse.
I will refrain from giving you recommendations, let’s talk about risk tolerance instead. It is on this basis that we must assess the relevance of investing in the stock market, and this, at all times, and not on the news.
I am not referring to your psychological capacity to sustain temporary losses. If you are thinking of increasing your exposure to the stock market these days, you probably have strong nerves. Let us rather speak of the “objective” aspects of the question.
The investment horizon
The more time you have, the less risk you run of losing. If you’re investing money now that you might need two years from now, there’s a significant chance you’ll lose it. For example, it might be tempting to want to quickly grow a sum raised for a down payment, but it is a bad idea to invest this money if the purchase of the house is planned soon.
If, on the contrary, it is an investment for retirement in 25 years, you could suffer losses on paper in the meantime, but they will be recovered before this deadline.
At the bottom of a five-year horizon, I consider the risk significant.
Job security and earnings
A person who enjoys job security and counts on a good paycheck every two weeks can assume more risk, the fluctuation of his portfolio is compensated by the stability of his income. She can push the audacity of a notch if, in addition, her retirement plan is concreted by a generous pension fund.
Conversely, an individual who lives from contract to contract must be more careful, without it becoming excessive. You should not limit yourself to guaranteed investments which do not bring in anything, but distribute your marbles according to your investor profile.
Assets already accumulated
The richer you are, the more easily you can live with the ups and downs of stock markets, in general. When one’s financial future is already largely assured, an adventurous investment of $10,000 does not present the same risk as for the neighbor who pulls the devil by the tail. Betting $10,000 when you have $50,000 is more stressful than when you’re sitting on $500,000.
Time, income stability and a certain level of wealth have this in common: they protect us from the need to withdraw investments that have temporarily lost value.
What it also tells us is that recklessness represents a dangerous shortcut for those who have neither the time, nor the stability, nor the assets.