Why investing today is better than investing tomorrow
11 May, 2022

If you are completely new to investing, you may be hesitant to begin. Most individuals are put off by financial jargon, overstated risk, uncertainty, and misconceptions. However, when it comes to making your first move, it is usually better to begin sooner rather than later.

1. Time in the market > timing the market

Market timing is buying a security with the expectation of selling it at a higher price in the (near) future. Investors trying to time the market believe that they have to predict the future – buying low and selling high. Even though this strategy is often successful, it is impossible to predict the market or to know how the markets are going to move in the future.

 On the other hand, "time in the market" refers to a strategy in which investors do not try to predict when the market will be at its lowest or highest point. Instead, they invest early, hold for the long-term and ignore short-term noise. This is based on the premise that markets are more likely to increase than to decrease in the long-term.

Long-term buy-and-hold tends to outperform in markets whereas market timing remains difficult. Much of the market's greatest gains or losses occur in a relatively short period of time.

We offer a better alternative, so that time in the market vs. timing the market is not a concern. While investors following the buy-and-hold strategy, i.e. are “time in the market” believers, achieved 8.6% with the S&P between 2005 and 2021, investors following One-Signal’s strategy returned 42%.

2. Inflation

Many individuals merely think of inflation as rising prices and therefore loss of purchasing power. While this is of course correct, it especially impacts savers, as their money ends up being worth less when they decide to spend it. U.S. inflation rose to 8.5% in March, the highest rate since 1981. This means that, $100 a year ago is now worth $91.5. In other words, let’s assume that inflation averages 3% over the next 5 years. This means that buying something worth $1,000 today would cost $1,159 in 2026.

The only way to overcome this is by finding an account or investment that “beats inflation”, which means that the interest or profit achieved is higher than the inflation rate.

Over the long term, stocks have outperformed inflation. This 'equity risk premium' compensates investors for the higher risk of investing in stocks or stock-based assets over time. This risk can show as larger ups and downs, volatility, and the chance of significant losses, at least in the short term and during bear markets. This is easier to endure if an individual has a longer investment horizon and a higher risk tolerance as opposed to a shorter investment horizon and is more risk averse. Keep in mind that there are no guarantees that stocks will keep up with inflation because previous performance is not a reliable indicator of future performance.

For example, the inflation rate in the US was 4.7% in 2021. Meanwhile, the S&P 500 returned 26.6%. This means, that individuals who kept $1,000 in their savings account effectively lost 4.7% of their moneys value, ending up with $953. Investors who put $1,000 in the S&P 500 at the beginning of 2021, ended the year with $1,266. However, traders following One-Signal were the biggest winners, with an increase of 44.5%, i.e. ending the year with $1,445.

3. Compounding

Albert Einstein said: “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it.”

The beauty of investing is that even a modest account may quickly grow to a significant sum of money. This is due to the wonder of compounding interest. It is simple but effective: the S&P 500 returned 15.29% in 2020, meaning that $1,000 increased to $1,152. In 2021, the S&P returned 26.61%. If no money was withdrawn from the account during the second year, the $1,287 will have grown to $1,458. Now let us apply the principle of compounding interest to investors using One-Signal. In 2020, One-Signal returned 27.68%, meaning that investors who invested $1,000 at the beginning of 2020 following One-Signal, finished the year with $1,276 (compared to $1,152 buying and holding the S&P 500). In 2021, the performance was 33.08%, meaning that investors who did not withdraw money from their accounts finished the year with $1,698 (compared to $1,458 for S&P 500 investors).

It is as easy as that – with a bit of patience and discipline, individuals can outperform their market effortlessly. The longer you stay invested, the more money you generate through compounding.

4. Financial independence

Investing can provide numerous advantages. For starters, it can help ensure that you don't run out of money, especially in your retirement years when you no longer receive income from your employment. According to several studies, Social Security retirement benefits are not enough to maintain a person's quality of life in retirement. A separate retirement account can cover the majority, if not the entire, of any shortfall. Investing can help you accumulate enough wealth to live off the money in your accounts. No more worrying about whether you will have enough money to cover your costs at the end of the month.

 

There are numerous reasons why you should begin investing actively as soon as possible. What may appear to be a small sum at the beginning, will gradually develop and mature into a significant amount with time. It is important now more than ever to start investing to beat inflation, but wealth creation is a long-term process and there is no shortcut to it.

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