Pending Recession? Is Now The Time To Invest?

Everyone is talking about a recession, is it a good time to invest? 

Ever since I became serious about investing, the overwhelming narrative has been the pending recession or stock market crash. Since then, the S&P 500 is up spectacularly.

The truth is no one knows when a recession will happen, but there will always be people predicting the next one. The crowd will stick to their existing beliefs, whether that be forecasting a recession or the most prosperous of futures. Even if a recession does occur, I have difficulty worrying from an investment perspective. 

Here’s why:

When stocks go down, it is the best time to buy. When stocks go down, generally speaking, they go on sale. So a recession would be liKe an End of Season, Amazon Prime Days, Black Friday, Cyber Monday, and Boxing Day sale all rolled into one. 

If we look back to 2008, from about the peak of the S&P 500 before the 2008 recession to today, if you bought at the peak you’d be up about 88% to date. That’s not the worst thing in the world, still an average annual return of about 5.3%. 

Now if you had bought at the very bottom of that recession, today you’d be sitting around a 280% return, or an average annual return of about 11.7%. That’s no joke!

So there is a difference in returns, but no one knows the peak or the bottom of a recession (and if you do please contact me immediately — we’d like to speak with you)

Instead of trying to outsmart the markets, I recommend sticking to a plan. That’s right, the markets are crashing, the doomsday predictors are dancing, and you’re sticking to your same old plan. Keep making those regular contributions, keep saving towards your goals, DO NOT — for any reason — pull out your money. 

Again, here’s why:

We see that there is a big difference between investing all of your money at the peak before the recession, and at the bottom of the recession. What we don’t want to do is miss the bottom, we want our money playing in the game so we can reap the rewards. By continuing to make our regular contributions we are putting in money as the market drops, and this is actually going to lower our average unit cost per investment. What this means is we are going to position ourselves somewhere in the middle between the peak and the bottom guaranteed, rather than the ultra-slim chance of nailing the timing at the top and the bottom.

What I’ve found helpful is to set up automatic contributions and don’t open or look at your portfolio balance. Seeing your portfolio down can make you feel sick, I have absolutely been there. Sometimes it’s best to set everything up to ensure you’re doing your part and then putting it out of your mind. Like Wealthsimple’s famous tag line: invest on autopilot. 

The worst thing you can do is get scared of the markets, pull your money and maintain that fear moving forward. Recessions are a natural part of investing, they are common and needed to stimulate the economies once again. They will happen many times throughout our lives, but by not investing at all, we are throwing in the towel and sitting on the sidelines.

I’ll use the example of rock climbing, because that’s been a new joy of mine this summer. Sometimes you get stuck on the wall, and you have to reevaluate where you are and actually go back down before going up. This could be a few moves down so you can see where you were stuck and find a solution, or back to the bottom. But it’s a natural step in problem solving, reevaluating. The worst thing you can do is go down and never try again, especially when you were so close to the top. And yes, it can be scary when you’re making your way up. But when you get to the top it’s a feeling that’s comparable to few. You know you stuck with it, pushed yourself, and achieved the goal you were setting out to accomplish.

So whether it’s rock climbing, or your very own financial goal: know your plan and stick to it. Markets go up, and they go down. No matter what they are doing, you want to be along for the ride, because it’s an amazing one. Keep making your contributions and saving for your down payment, vacation, retirement or anything in between. You got this. 

Now, if you feel you’re investing whimsically, without a plan, don’t hesitate to reach out. Let’s take a look to see where you’re at and what we have to do to get you to where you want to be. Whether want to get started, self managing your investments DIY style, or have an account outside of Haven — contact us, we’d love to hear from you. 

Derek Condon
Financial Advisor 

Josh Olfert