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After introducing some key concepts to understand the world of investment and now that you have understood why it is essential to invest, let’s discuss the how and why. So in this chapter we will see when it is best to invest and what amount is recommended.
When is the “perfect time” to invest?
Waiting for the perfect moment to invest is therefore never a good idea since financial markets are unpredictable. Why? In particular because they are dependent on unpredictable external events (geopolitical context, natural disasters, etc.). To find out more, you can read our article Financial markets are unpredictable and that’s okay .
Consider Charlie and Max, two fictitious investors.
Every year, Charlie invests $10,000 at the perfect time, the market’s lowest point, while Max invests the same amount at the worst time, the market’s highest point.
After 42 years of investing every year, the two friends’ results are surprisingly similar. How is this possible? They never sold their stocks, letting time and compound interest work in their favor.
This example allows us to draw a first lesson: the patience and perseverance of an investor pays off. The best practice is to invest regularly and let your investments grow over the long term . Indeed, even experts have a lot of trouble “timing” the market, that is, investing only when conditions seem perfect.
This famous “timing” is actually not so important when investing in the long term for several reasons.
Long time never wastes
Historically, despite crises and declines, stock markets tend to rise. Investing regularly allows you to benefit from this growth. The curve of the MSCI World (the most popular ETF) illustrates this perfectly.
Circled in red, the previous 2-year graph
Over a period of 3 decades, a decline over a year or two is completely insignificant . And this is confirmed for all financial products.
The role of compound interest
The famous compound interest allows your investments to grow. The gains generated themselves create new gains, over the long term we speak of a snowball effect because their impact is exponential.
Less stress and therefore fewer errors
Trying to guess the best time to invest can lead to emotional reactions, costly mistakes, and a lot of stress. Investing regularly and holding your positions even when there are big fluctuations reduces this risk.
In practice: It is recommended to establish an automatic investment plan. For example, each month, invest a fixed amount, regardless of the state of the market. This method, called ” dollar-cost averaging ” (or “DCA” ), allows you to buy more shares when prices are low and less when they are high.
The best time? Now.
So there is no need to wait for the perfect moment to invest, because that moment does not exist. Starting now, investing regularly and letting time work in your favor is the best strategy. With a patient and disciplined approach, the market can become a powerful ally in achieving your financial goals.
To go further, consult the article Your retirement, a question of timing
We have insisted on the fact that there is no best time to invest based on the study of financial markets. However, personally, there are two times when investing is always a good idea: at 18 and now! Why?
As soon as you are legally able to do so, which is at 18 today in France, even if it involves small investments, starting to invest is a good practice. Imagine that you invest €100 per month from the age of 18, with an average annual return of 7%. By the age of 65, you could have accumulated nearly €300,000 (thanks to our famous compound interest).
If, like the majority of our readers, you are over 18, there is a second best time to invest and that is now . Indeed, it is never too late to start!
Finally, the biggest risk is procrastination. Delaying your entry into the wonderful world of investing means missing out on opportunities. For example, if you had invested €10,000 10 years ago in an index fund, your investment could be worth more than double today! So here we go, let’s go and continue reading the rest of the chapter carefully, to find out how much to invest.
Glossary: Index fund and index
An index fund is an investment fund that seeks to replicate, as far as possible, the performance of a specific stock market index, such as the CAC 40 or the S&P 500.
An index is defined by a series of more or less objective rules that allow a series of investments to be selected and a weight to be assigned to each within the index. If the investments are in shares then we are talking about stock indices.
Determining how much to invest
Everyone has their own pace, the important thing is to find the one that suits us. And no, this is not the slogan of a dating app, we are still on the subject of investment.
The first thing to do is to lay out your profile and your situation to know how much it is realistic to invest in your case. Your situation can obviously change and the amount available to invest as well. Let’s look in more detail at the parameters that come into play.