Commentary · Commentary
The Cost of Waiting to Invest
Written by the William Allan team · Published
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Compounding rewards time, but “invest immediately” is not a universal rule. The decision to invest should account for emergency reserves, high-cost debt, near-term spending, risk capacity, and the possibility that markets decline after the investment is made.
What Compounding Does
When investment gains or income remain invested, they can contribute to future gains or income. More time gives that process additional opportunities to operate. Real returns are uneven, however, and may be negative for long periods. Fees, taxes, inflation, withdrawals, and the sequence of market returns all affect the result.
Examples that assume a constant annual return illustrate arithmetic, not what an investor will earn. No assumed rate, contribution schedule, or holding period guarantees a particular ending value.
Why People Wait
Some investors delay because they are trying to predict a better entry point. Others are appropriately building cash reserves, paying down expensive debt, or preparing for a purchase. Those situations should not be treated the same.
An investor moving out of and back into the market must decide when to sell and when to buy back in. Someone holding new cash instead faces an initial entry decision. A written allocation and contribution plan can reduce the pressure to decide from headlines or emotion. Dollar-cost averaging may make the process easier to follow, but it does not assure a profit or prevent losses.
A More Useful Starting Point
Before investing, clarify the purpose of the money and when it may be needed. Funds for near-term obligations generally require a different risk profile from money intended for a retirement many years away. Once reserves and time horizon are established, a repeatable contribution and rebalancing process may be more useful than waiting for certainty.
William Allan helps clients compare these tradeoffs and construct portfolios around their circumstances. The firm cannot predict short-term markets or guarantee that starting at one time rather than another will produce a better result.
This commentary is for informational purposes only and is not investment, tax, or legal advice. All investing involves risk, including the possible loss of principal, and past performance does not guarantee future results.