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If investments become cheaper, and you’re a buyer, that’s a good thing
In the last few years, stock markets around the world have been hammered. Currencies have also fallen to historic lows. People see their portfolios down and are running scared.
I am among the many people who have gone backward or stood still over the past few years. It is unnerving. It’s always nice to look at your portfolio and see it going up, up, up.
But here’s the thing many people have missed. All that really matters with an investment is the price you buy at, the price you sell at, and the income it generates in the interim period. Looked at this way, the current market is almost certainly a huge opportunity for me.
Ultimately, I’m a buyer of stocks. I currently earn more than double what I actually spend on my lifestyle. Most of the additional money goes into an index-linked mutual fund. This fund buys a mix of Australian and international shares, property and bonds. The valuation of this fund is down about a third from its high a few years back. Very unnerving!
Now nobody really knows what the future will be with any investment, but based on probability, it looks like an excellent time to keep buying. All of these markets are as low as they’ve been in years. All are throwing off good incomes in the form of dividends and other yields. And to top it off, the Australian dollar is at historic highs against other currencies, which means I get even more foreign assets for my money.
Perhaps things will keep going backwards for the next twenty years or so until I finally sell my investment. But that seems unlikely.
So for the past couple of years I’ve been buying heavily into my fund. Sure, it scares me a bit when I look at it and see the price falling. But the truth is that I’m buying the same thing I would have bought anyway at a lower price. That has to be a good thing!
Your circumstances probably differ from mine, but the principle should be the same in your own investing. If prices of investments fall, and you’re a buyer, that’s an opportunity. Don’t be put off by negative returns over the short term. You’ll have to fight your own feelings somewhat, but your mind should tell you it’s a good strategy.
Bet on the likely outcome. If prices are low, that outcome is probably that they’ll rise over time.
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