When Investing Feels Uncomfortable

If you've been investing for any meaningful amount of time, you've probably noticed something: there's almost always a reason to be concerned about the stock market.

When stocks are reaching new highs, investors worry that valuations are too expensive and a correction is around the corner.

When stocks are falling, investors worry about how much further they could decline.

And when markets are moving sideways, investors wonder whether they're better off sitting in cash until things become clearer.

The problem?

Waiting for the perfect time to invest often means waiting for a level of certainty that simply doesn't exist.

The Market Always Gives Us Something to Worry About

Think about the different environments we've experienced over the past several years.

We've had a global pandemic, inflation reaching levels not seen in decades, rapidly changing interest rates, geopolitical conflicts, recession concerns, and ongoing debates about whether stock market valuations are justified.

Each of these events gave investors a legitimate reason to question what might happen next.

And yet, despite all of that uncertainty, markets have continued to provide opportunities for long-term investors.

That doesn't mean every concern was overblown or that markets will always recover quickly. Some risks are very real, and market declines can be both significant and prolonged.

But there's an important distinction between recognizing that risks exist and believing we can consistently predict how those risks will affect investment returns.

Unfortunately, investors often confuse the two.

Why Waiting for Things to Settle Down Can Backfire

Let's say you're sitting on $500,000 in cash that you've earmarked for long-term investments.

You're concerned that stock prices are too high, so you decide to wait for a 10% correction before investing.

That sounds reasonable, right?

But what happens if the market increases another 20% before experiencing that 10% correction?

Even after the decline, stock prices would still be approximately 8% higher than when you originally decided to wait.

Of course, the opposite could happen. You might invest today and experience a significant market decline tomorrow.

That's the frustrating part about investing. We don't know which outcome will occur.

And we need to be careful about evaluating investment decisions solely based on what happens immediately afterward.

A good long-term investment decision can produce a disappointing short-term result. Similarly, a poor investment decision can occasionally produce a favorable outcome.

The goal shouldn't be to make investment decisions that work out perfectly over the next six months. It should be to make decisions that support your financial goals over the next six, ten, or twenty-plus years.

Your Time Horizon Matters More Than Your Market Predictions

One of the most important considerations when making investment decisions is understanding when you'll actually need the money.

For someone who's 35 years old and investing for retirement, short-term market volatility might be relatively insignificant compared to the potential benefits of remaining invested for another 25 or 30 years.

For someone who's 65 and planning to retire next year, the conversation is very different.

They might need to begin withdrawing money from their portfolio almost immediately. In that situation, a significant market decline could have a much greater impact, particularly if they're forced to sell stocks at depressed prices to fund their retirement expenses.

This is commonly referred to as sequence-of-returns risk. The timing of investment returns matters considerably when someone is withdrawing money from a portfolio, particularly during the early years of retirement.

It's one reason why investment decisions should be driven primarily by when you'll need the money, rather than what you think the market will do next.

Building an Investment Strategy Around Uncertainty

Rather than trying to predict when markets will rise or fall, investors can structure their portfolios around different time horizons.

Money that will be needed in the relatively near future might be allocated to cash, Treasury securities, or other high-quality fixed-income investments.

Money that won't be needed for several years might be invested in a combination of bonds and stocks, depending on the investor's circumstances and tolerance for risk.

And money that isn't expected to be needed for a decade or longer may be better suited for a more growth-oriented allocation.

This approach doesn't eliminate investment risk, nor does it guarantee that a portfolio won't experience losses.

However, it can help reduce the likelihood that an investor will need to sell long-term investments at an unfavorable time simply to cover near-term expenses.

It also provides a framework for making decisions when markets become volatile.

If stocks decline 20%, an investor with several years of anticipated withdrawals held in more stable investments may have greater flexibility to allow their stock investments time to recover.

That doesn't mean a recovery is guaranteed or that the portfolio should never be adjusted. It simply means that the decision doesn't have to depend entirely on predicting where stocks are headed next.

Being a Successful Investor Doesn't Mean Being Comfortable All the Time

I think one of the biggest misconceptions about investing is that a good investment strategy should make you feel comfortable.

In reality, some degree of discomfort is unavoidable.

If you invest in stocks, there will be periods when your portfolio declines significantly.

If you hold cash, there will be periods when you wonder how much growth you're missing, particularly when inflation reduces your purchasing power.

If you invest in bonds, changes in interest rates can create losses that investors may not have anticipated.

Every investment involves tradeoffs.

The question isn't whether those tradeoffs can be eliminated. It's whether the risks being taken are appropriate for the goals the money is intended to accomplish.

Sometimes that means accepting short-term volatility in pursuit of long-term growth. Other times, it means accepting lower expected returns in exchange for greater stability and predictability.

Neither approach is inherently right or wrong. It depends on the investor's circumstances.

The Bottom Line

There will always be something happening in the economy, the stock market, or the world that makes investing feel uncertain.

Sometimes those concerns will turn out to be justified. Other times, markets will perform well despite them.

And we generally won't know which concerns mattered most until we're looking backward.

That's why I believe investors are better served by focusing on the things they can actually control: how much they save, how they diversify their investments, how much risk they take, when they'll need their money, and how their investment strategy fits into their overall financial plan.

You don't need to know what the stock market will do next to make good financial decisions today.

A well-constructed investment strategy should account for the possibility that things won't go exactly as expected.

After all, uncertainty isn't an unusual feature of investing. It's something investors should expect.