Despite all my concerns and uncertainties, I went ahead and made a $20,000@$60.13 investment into VDHG. It seems like a crazy sentence to write – “I was very worried but I spent $20,000 anyway”. Normally I would think this is something an idiot would say or someone who has been succesfully conned. But I have the feeling that the first investment of this size is going to come with a lot of uncertainty anyway. In fact, I’m convinced that this is a normal and healthy attitude to have when dealing with large sums of hard-earned money.
Since the investment was in VDHG, I wasn’t worried about a sudden loss due to regular market fluctuation. It is so well diversified that its day-to-day changes are only about 0.5% (very very roughly – [Don’t trust me; do your own research]). This investment is intended to be a long term investment over 10 years or more. So, fluctuations over days or months ought to be ignored. The strategy is to follow the market’s natural incliniation to grow over years and years.
Therefore, my main, and perhaps only, fear was that we are about to enter a recession and my money would immediately start to see losses. The strategy of long term investment is supposed to ignore recessions as the market will inevitably recover and your investment will continue to grow. This would console me, but the other fear is that I would be investing at the ‘wrong time’. If I were to just wait a few more months, maybe the recession would begin and I could use that $20,000 to invest when everything is cheap, and then my gains would be triple-fold.
I wasn’t scared by random recession talk or hype from the news about current affairs causing issues in the market. I was scared by the ‘inverted yield curve’. It is supposed to be predictive of all but one of recession of the past.
The highlighted yellow sections show the ‘inverted yield curve’ and the grey areas represent recessions. Currently, at the red arrow, our yield curve seems to have inverted. This seems like a real threat and a real sign of a recession. But no one can agree on anything and everyone treats the market as unknowable. I find it very hard to ignore this graph and have no idea how I should interpret it.
Essentially, I coneded that we may enter a recession in the near future, but I have no idea when it will happen.
So, I decided if we immediately enter a recession as I invest, then I will treat it as a long term strategy and just ride it out. I would still have opportunities to earn money and invest it during the recession. The alternative scenario is that we have a recession in one or two years. During that time my ETF will have gained value and dividends. If we enter a recession at that later stage, I may have time to sell at that point – at a profit – and have even more capital ready to invest during the downturn. (Although I think it is generally advised to avoid panic selling at times like that – but at least this makes me feel a little safer in the knowledge that my money isn’t entirely doomed.)
The lack of knowledge about when the recession could begin; how deep it could be; and how long it could last are all reasons to fear entering the market. But they are also reasons for why entering NOW is a good idea.
In saying that, I am prepared for my attitude to change if things go wrong, and I will use this blog to record my regrets and warnings to my future self. It’s hard to know if I am being greedy and impatient, or strategic and prepared.
AnxiousInvesting 