The purpose of investing is to prepare for the future with what one has today. If you have seeds on hand, you do not save them to eat all of them; you save them to plant. That is why saving is not enough, one must save and invest.
Since the purpose of investing is to prepare for the future with what one has today, it also means one is deferring some present gratification for future abundance. One uses some of today’s assets to prepare for the future. It is, in essence, a Less Now, More Later plan.
Investing does not require much else. Optimism is not a requirement of investing; one can be fearful and still invest; one can have a negative outlook and still invest. In fact, dividend investing before a market decline can be extremely profitable.
And it has been noted that a recovery that follows a downturn can offer a significant financial return. Regarding the economy in 1895, Bernard Baruch noted: “I had never experienced a depression before. But even then I began to grasp dimly that the period of emergence from a depression provides rare opportunities for financial profit.”
But
It can be said that those who think things will only get worse will not bother to invest. One may think things will get worse in the short run, and so investing looks to prepare for an eventual recovery. In buy-low-sell-high investing, one attempts to, well, buy low and sell high. It is another version of market timing. Determining when to sell is as important, if not more important, then knowning when to buy.
However, dividend investing has a different take. No one wants to overpay, so one’s initial investment price has great significance in any situation. But once one is invested, the dividends are usually reinvested, so the best course of action often is to just let the investment ride. Automatic dollar cost averaging is often a good course of action under many circumstances. When prices decline, it can be time to add more to one’s holdings, But most of all, have automatic dividend reinvestment on. The future then should take care of itself.
What is your plan? You can tell me here.
The Bank of England is located on Threadneedle Street in London, U.K. It is also known as “The old lady of Threadneedle Street.” (Photo in the public domain.)
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