3 Reasons Not to Invest Now

By Craig Ford on 19 April 2010 (Updated 9 August 2011) 13 comments

A common piece of investing advice (which is generally true) is that the best time to start investing is now.

But we must also remember that investing requires a personalized plan. You must invest based on your particular season in life and your particular financial situation. Too often people invest on what others say or think. They say, “This is a great time to be buying stocks.” They say, “The market is down, so you should start investing.” Friends say, “I know stock XYZ is going to skyrocket.” Financial advisors say, “You’ll be a millionaire in five years.”

Before any of us are ready to invest, we must first look in the mirror and look at our own financial books. For example, when addressing the question "Should I pay off my mortgage or invest?", people should consider their own personal situations and give that priority over everything else. This is because the mirror, not the Dow Jones, is often a better indicator of the right choice. Investing “now” just because that is commonly true might be a mistake in your case.

You Lack Basic Investing Knowledge

While investing has many enemies, none is more formidable than the enemy within. In the book Have Kids? Here are Four Financial Mistakes to Avoid, Steve Saclicci says:

Remember that old saying about the wisdom of "learning from your mistakes"? It’s good advice. But it’s wiser to learn from someone else’s mistakes.

While there are many lessons to be learned from investing, you should not start investing until you have at least fundamental investing knowledge. If you are thinking about mutual funds, then learn mutual fund investing basics. It may not be necessary to delay investing indefinitely, but spending a month learning, researching, and reading can go a long way to getting you started on the right track. Once you know how to start investing, you will be able to make wise investing choices.

You Have Debt

It is great if you have decided that you want to get your financial life under control. Getting out of debt is a great thing. Unfortunately, if you have debt, a better choice for you is to postpone saving for retirement until you are debt free. While there are certainly exceptions to this rule, most people who have debt would be better off emotionally and mathematically if they first reduced their high consumer debts. One of the biggest mistakes you could make is to start investing, have high interest payments, and then later need to withdraw money (at a fee) from your retirement account to get you out of a financial bind.

Your Future Plans Are Completely Unknown

None of us can know all of our future plans with certainty. However, when investing, you need to have a solid idea of how you want to invest the money and how long the money can stay in the market. Time is a necessary component for reducing risk. The more time you have, the less risk you assume. If you have money and have no idea how soon you will need it, you are better served keeping it in a high interest earning bank account.

Oftentimes, buying, selling, and transferring accounts incur fees. Don’t get in a rush and open an account only to find out that you will need to pay fees to withdraw funds early from a retirement account. In addition, you need to take the time necessary to be sure the investment type is right for your needs. For example, if you start saving for your kid’s college using an ESA, you cannot later transfer those funds to save with a Roth IRA instead. You need to be sure about your game plan before you jump into an investing strategy.

Investing is a highly personal activity based completely on your individual situation.

Can you think of any other situations where “now” might not be the best time to start investing?

This is a guest post by Craig Ford, author of Money Wisdom From Proverbs. Read more from Craig on his blog, Money Help For Christians.

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Guest's picture

How about "You have no income"? Combined with "your future plans are completely unknown" you have my situation exactly. Hopefully, 2010 will bering jobs and a chance to plan ahead a little.

Will Chen's picture

"Financial advisors say, 'You’ll be a millionaire in five years.'"

I would fire that advisor ASAP.  =)

Great guest post Craig!

Xin Lu's picture
Xin Lu

Like you said, noone knows exactly what the future will be, but that should not be something that holds people back from investing. I think if people do not save and invest because they fear the unknown then they are more likely to spend everything in the moment. 

Guest's picture

I agree with Xin Lu.  The most important part of investing is just to get started.  Even money saved in a bad investment is much better than having no money at all.

My first investment was recommended (sold) to me by an advisor.  It was a volatile mutual fund with a 8.5% front-end load and terrible long-term performance.  But, that got me started investing and I soon became much wiser.  I moved that first investment into a good no-load fund and then later used it to buy my house.

Don't be afraid to invest.  Pick an investment that supports your goals and go for it.  If you realize your investment isn't doing well or it doesn't suit your financial goals, then change it and never feel bad about it.  You will be way ahead of those who never learn to save.

Guest's picture
kt

i think that the best reason is the one that you have given as the first one. Many people get into the investing world just because they have a wad of cash burning a hole in their pockets and then they start complaining when they loose it all. All the best books on investing have always thumped this maxim into the readers heads that they shouldn't invest unless they have a somewhat strong financial education base

Guest's picture

It actually doesn't matter when you start, it's all about actually starting to save. As long as you can put away a little bit each month then you will soon be into the habit and that is the hardest part.

Guest's picture

Excellent Post! Thanks for providing such information. I am gong to invest in stock market but thanks to you, your suggestions really help me in knowing how to invest. You are right before going to invest we have to make some research about a particular market and search what the trends are going on. Investment is not a simple thing to do, a whole procedure is gong behind it.

 

Guest's picture

Ha...Always what I tell people on forums who think they're experts at everything. I'm currently in an MBA program and I took a finance class not too long a go. I thought about investing in the low market right now, but after I talk with my professor about the current market I had some doubt. He told me some of the stuff I never thought of before and from talking with him for 30min felt like I learned much more than a whole semester in class.

People should try to learn more about finances before investing or put their money into investors' hands. If they're that great, they won't be working for you, they would be investing themselves!

Guest's picture
Mike Deluca

I am new to the market. I am not sure if I should start with Stocks, Bonds or Mutual Funds. I recently retired and I have everyone giving me advice. I do not trust brokers. I am willing to do it myself. So figured I could get advice. Friend told me about this site http://www.moneyandstocks.com but it looks more like advertising than anything else. Please advise me which way to go.

Guest's picture

Hi....
Thanks For the information............
All above mentioned is all too good, because savings account is the best option for those person who faced of Financial Crisis & Recession.

Guest's picture
N

Does anyone know of a reason why letting my money sit around doing nothing would be better than putting it in a Sally Mae savings account at 1.40 APY? It sounds like a good deal, but is there some kind of catch?

Now suppose my money is definitely going into some kind of high-yield FDIC-insured savings account and, barring unforeseen circumstances, staying there a while. Is there any reason to pick Capital One Direct (1.35 APY) or Ally Bank (formerly GMAC, 1.29 APY) over the higher rate offer?

Guest's picture

Wow! There isn't much more I could add to this one other than "You don't enough in savings". Too many people (at least at the college level) believe that savings and investment are synonymous or that you can invest with or before you actually save. In reality its bad to do both. Saving is separate and never invest with what you save...not unless you want to be broke.

Guest's picture

Cool post. Craig highlighted some key basics that one must get right before investing. "Is there a situation when investing now might not be the right time". Other than not having money, there is one... Having not found the right deal.

Investing is a business, and return is the big daddy. There is no point investing or starting a business if the return is not right.

Finding the right deal takes some time and homework. Park the cash and then capitalise on opportunities when they arise.