A quick clarification of some common advice:

“You’re young, you can afford more risk.”

This statement has been uttered countless times by investment experts and, at heart, it’s very true. However, “more risk” does not imply that every new investor should consider throwing every bit of his or her money into a small Nicaraguan telecom company.

Instead, the intent of the phrase is such that risk implies fluctuation, and young investors simply have more time to ride the ups and downs of their investments, possibly absorb a few poor investments, and reallocate their portfolios if necessary.

Deceptive journalism breeds false hope in novice investors

“You can be rich.”

“If you invest $100 per month at a rate of 10% annually, in thirty years you’ll have about $228,000.”

This is the garbage I read in an article recently, and the type that young people are subjected to on a regular basis. Garbage? What do you mean it’s garbage?!

If you think an investment account showing a balance of $228,000 is going to be sufficient to retire on now, you’re crazy.

If you think that this will be enough when this would actually occur (according to this model), in the year 2038, then your problems are much bigger than debating where to put your money. The website psychologytoday.com has many resources that you could make use of, and I suggest your time is better spent there.

Hopefully you chose to stay with me so that I may give you a spin on investing that may be uncommon or out of favor with the general professional population.

Before I do this, let me stress that there is nothing wrong with saving money, and if you decide to put away any amount of spare income, you’re making a better decision than someone who does not.

…But there is also nothing wrong with being mediocre, living in a one-bedroom apartment and riding public transportation during your retirement.

Today was brought to you by the number “0”.

Good old Sesame Street. Ok, we’re not talking about that early on in life.

Let’s classify the term “young” as ages 22 to 30, the age after college graduation and into a professional’s first career, and the age where many people begin to think about starting an investment portfolio.

Many people of this age, when asked, rarely have investments separate from a work-related retirement account of some kind. In fact, many people have no investments whatsoever. Zero. The most common reason? They don’t know how to invest or what to invest in, especially in this market, where the only certainty is uncertainty itself.

Especially as turbulent times abound, the whirlwind of E-trade, Fidelity, and other investment company commercials and advertisements have ex-students confused as to where they should place the first of their hard earned dollars.

Common advice yields common returns. Uncommon advice yields greater returns.

Now let’s get into the one piece of common advice I would like to examine in this article:

Don’t try to time the market.

Here’s my uncommon advice:

Time the market.

Yes, it took me all night to think that one up. Now, don’t take this as literally as it reads. Finding perfect times to buy and sell is not difficult, it’s impossible. Unless, of course, you can get your hands on a flux capacitor, drive it up to 88 miles per hour, and buy some Dell in 1990.

However, structured buying can be a great idea. For example, buying more of an index fund after it has pulled back 20% (hint, hint…) may prove profitable if you are investing for the long-term. After all, every single time in history that the market has pulled back 20%, it has eventually bounced back above that level in the future.

Again, this is long-term we’re talking about. Younger investors have a longer time horizon, and therefore have many more opportunities to take advantage of cheaper markets.

Anyone heard of Warren Buffet? I think he has invested in a few things before. Here’s a quote:

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

Another statement The Oracle of Omaha has made:

“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”

The bottom line: Time the market. From the long side.

Now that I’ve committed conventional investment blasphemy with my three-word phrase, I want to further clarify that it’s not a good idea to time the market from the short side. Dozens of reasons, trust me. Instead, let me share another relevant quote:

“I’ve always made the most money in times of maximum pessimism.”

Someone else that has a little credibility is a man named Sir John Templeton (the founder of Templeton mutual funds). This was his philosophy. It was put into practice when, in 1939, he purchased 100 shares of each company that was trading under $1 per share. There were 104 companies at this price. Did he research each one? Doubt it. Google didn’t show its face for 57 more years.

His return on this investment was 400% within four years.

To our younger readers: Taking advantage of market downturns by slowly ramping up your investments during that time can have profound effects on your portfolio. Make diversified investments gradually throughout your career, but as prices fall, look at it as an opportunity rather than a disaster.

And, especially when you’re starting out, try mutual funds. Let the experts decide on individual stocks. It takes less supervision on your part. Good luck in the next thirty years.

John K. Whitehall
Analyst, Bourbon & Bayonets