3 Situations Where You Should NOT Invest

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We live in a time where financial independence, investing and owning multiple streams of income has become the “in” or “cool” thing to talk about these days.

On one end you have your crypto investors experiencing 20,50, 100 and sometimes even 200% returns within a span of a few months and on the other hand, you have your S&P investors experiencing a new high almost every other day.

Making money from investing seems to be such an easy thing to do these days to a point where everybody is trying to jump into it hoping to invest in the next bitcoin or amazon to 10x their wealth.

In today’s video, I want to talk about three situations of which if you can relate to either of these situations, you should NOT invest simply because you are not ready for the risks that come along with investing.

Without further ado let’s get started.

1. You do not have a basic understanding of investing concepts

The first situation where you should NOT invest is if you do not have the basic understanding of simple investment concepts like

what is the difference between a stock and bond
what are funds
what is the difference between ETF and Mutual Funds
what is the difference in behaviour and exposure between different funds
what is the difference between capital gains and dividends
what is volatility
what is the expected volatility of a given investment instrument

The list goes on but you get it

If you don’t even have a basic understanding of these investment concepts, you should NOT invest as clearly you do not know what you are getting yourself into.

I don’t care if you are looking to invest in the S&P, STI, blue-chip companies like SIA, REITs or even Roboadvisors…

if you invest without knowing what you are getting yourself into, it is almost certain that you will fall prey to common investment biases that will cause you to perform poorly simply because you have no idea what you are doing.

Investing without having a clear understanding of the basic concepts is like trying to swim across an Olympic size pool without knowing how to swim. Chances are you are going to float for a bit and then drown and die.

So please, at least take some time to just google or read up on the basics of investing before you even consider investing your own hard-earned money into the markets.

It doesn’t make sense for you to risk years of your savings into any investments when you don’t even bother to spend a few days learning the basics of investing.

If you attempt to play stupid games, don’t be shocked when you win stupid prizes.

2. You have less than 5 years to invest

The second situation where you should NOT invest is when you don’t even have at least 5 years to invest and here’s why.

Now the first rule of investing is to not lose any money.

Based on market history, the times where you have a high probability of which your investment will lose money is during times of a financial crisis or recession.

Meaning to say that if you want your investment to have a high probability to at least break even and not suffer from any form of investment losses regardless of the type of market and economic condition, you need to know how your investments would behave in times of a financial crisis and recession.

Once you know how your investments would behave in the worst possible situations, you can then invest accordingly in preparation for such situations so that if shit happens, you are prepared to sit through the storm wait out the recovery so that you will not suffer any form of investment losses.

Make sense?

Now while I can’t speak for individual stocks or instruments, what we can do is to study how the broad market – mainly the US market as represented by S&P 500 – had performed in the previous financial crisis and recessions.

Now assume that today you are the worst and most unlucky investor that ever walked the earth, every time you invest, the entire market will crash the next day.

Based on all the past major financial crises, recessions, and market crashes from 1926 to 2019, what you will realize is that if you were to invest today and the market crash tomorrow, on average you will need about 5 years to break even on your investments.

Sure, there are exceptions like the Dotcom crash and the 1929 great depression but on average, the chances of you suffering from a loss after a major financial crisis after the 5th year of remaining invested is low as most of the time the market would have recovered.

This is also the reason why if you do not have at least 5 years to invest, you should NOT even consider investing in the first place as you will have a hard time sticking to the first rule of investing which is to not lose any money.

As I often tell my client, take care of the downside risk and the upside return will take of itself if you are investing in the right stuff and broadly diversified regardless of the ups and downs that, you may experience along the way.

3. You are investing for things like property and marriage

The third situation where you should NOT invest is if you are investing for short-term things like settling down and financing for your marriage and property.

Riding on to my previous point of you should not invest if you have less than 5 years investment horizon if you are investing for things like settling down, chances are is that you have less than 5 years to invest and if that’s the case you should stay away from the market.

Even if you do not intend to settle down within the next 5 years, you should still not invest the funds needed for settling down because if, a few years down the road, shit happens and the market collapse due to a recession or financial crisis, what are you going to do?

Are you going to delay your marriage plans?

Are you going to delay your renovation plans?

How are you going to pay for things when the time comes and the market is not performing to your expectations?

Unless you are prepared to look into your partner's eye and tell him or her that the marriage is not happening until the market recovers, you should not invest and take the unnecessary risk for things that are not negotiable and things like settling down, marriage and property are often things that are not negotiable.

Your future investment returns can wait, your marriage and your property cannot.

Summary

So, there you have it, these are the three situations of which if you are in either one of them you should stay away from investing regardless of how lucrative or enticing it may seem to be.

The first is if you do not have a clear understanding of the basic investment concept, the second is if you do not have at least 5 years to invest and the third is if you are investing to finance for non-negotiable things like settling down, marriage and property.

While the markets would generally trend upwards in the long run, that does not apply to you if you do not have the “long-run” to capitalize on the upwards trend when in the short run, chances are is that the market will go up and down like a roller coaster.

So please, take into consideration of the downside risks that come along with investing, especially when you are investing in the short-term and please try not to be enticed by the “get rich quick” stories you see online this day. You are better than this

Do not jump into the current trend of investing without knowing what you are getting yourself. If you play stupid games, don’t be shocked to win stupid prizes.

Daniel is a Licensed Independent Financial Consultant with MAS and a certified Associate Wealth Planner that provides: