Think about a great skill you have. Doesn’t have to be something for the record books, just a skill that you know helps you stand out. One that you’re proud of and ready to #humblebrag about. Cooking is what’s coming to mind for me right now (ask anyone, I make a mean peach pie).
But cooking also really works well with the point I’m about to make, which is that one of the consistently best ways to see your efforts pay off is by making the behavior a habit. A few summers ago, I declared that it was going to be the “summer of the pie,” (because why not?) so I made pie after pie after pie until I got it exactly right. Turns out legendary French chef Jacques Pepin takes a similar approach: Cooking often is his number one habit for better cooking (having a glass of wine before and after cooking come in at four and five…like I said, similar approach).
The same goes for investing. Investing regularly is how you can become an experienced investor (and improve your chances of reaching your goals).
But before we talk about how you can make investing a habit, we have to talk about an overrated investing strategy first.
Calling the Market Right…Ugh
Contrary to what Hollywood, Wall Street, and that MBA-wielding know-it-all (you know the one) would like you to believe, getting your timing right for investing (“buy low and sell high!”) isn’t an effective investing strategy. They make it seem like investing is all about being in the right place at the right time. According to them, it’s the only way to make a good amount of money, and the Real Investors are the ones who do it time and time again.
Yeah…no. I spent three decades on Wall Street, wrote reams of research, and to this day, still read tons of research on what’s happening in the industry. The unsexy, Behind-the-Music truth is that it’s incredibly hard to beat the market when your investing strategy is all about timing the market.
Don’t believe me? Then let’s quantify “incredibly hard” here. According to the data, less than 0.1% of money managers beat the market over a five-year period.
But what if I told you that by making investing a habit, you could potentially see market-like returns over time? No one can predict what market returns will be in the future, but historically they’ve averaged 9%-11%.
Steady, Steady, Steady
The truth is there are no shortcuts in investing. It’s a long game (that’s why I wrote “over time” above), and any strategy that focuses on timing the market is short-sighted because you can’t always know when to “buy low and sell high.”
However, when you’re investing steadily, you’ll have “buy low” moments alongside any “buy high” ones because you’ll be putting your money to work in different market conditions. And that may pay off.
Take the financial crisis of 2008. It took the Dow five years to recover from its declines; but if you had invested regularly — which is what we recommend at Ellevest — investing $1,000 in early 2008 and $1,000 in early 2009, your investment account would have more than recovered by the end 2009, with more than the original $2,000 in it. Not bad.
So what does it take to invest steadily? Less than you think, probably. It’s less about dollar amounts — no, you do not need to be a millionaire to invest, at least not with Ellevest — and more about percentages, as in putting aside X% of your paycheck. The goal is 20% of your monthly take-home pay, but if you have to start lower, say…10%, 5%, or even 1%, go ahead. Remember: This is about building a habit, so the behavior is what’s really important here.
After you figure out an amount that works for you — FYI: Ellevest actually includes deposit recommendations for you in your free personalized investment plan — all you have to do is set up the frequency of your deposits. Automated deposits are your friend here, believe me. It’s the easiest way to make sure you stick to regular deposits and that way, you don’t have to deal with the “should-I-shop-that-sale-or-should-I-deposit-this-money” dilemma every 15th and 30th of the month.
I’m happy to say that almost three-quarters of Ellevest clients invest with recurring deposits, so you’ll be in great company once you start.
The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.
The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person.
Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time.