I am new to investing. I created an IBKR account and transferred there the money I received as an option cash-out from a US company. I would like to start investing and to do it sustainably. So I am thinking of buying ESG or SRI ETFs with the goal of long-term saving (however, there is a chance that I will need the money in two years or so). I am following the S&P500 trend and I can see that it has declined significantly. But I’ve heard some people saying that the economy hasn’t yet reached the bottom of the dip by far and a serious crisis is ahead. Is now a good moment to invest in ETFs in a lump sum or should I go for dollar cost averaging and invest small amounts every month? Or better wait longer and just keep the money in IBKR as a deposit until S&P500 falls even deeper? What strategy would you guys recommend for my case?
If you need the money in 2 years (“or so”), then I’d avoid investing it in the market. There is no guarantee that the market will be up in 2 years.
Only invest in the market if you can leave the money compounding over at least 10 years.
Unfortunately, nobody can predict the future. However, personally (this is not an advice) I think that we are not at the bottom yet. If you look at the prices we are roughly at the situation before the big stimulation by the central banks as a reaction of Covid.
Therefore, I will just keep buying parts of VT every month and do some other buys where I think that companies make sense in my satellite portfolio.
Another important point is time in the market, as you mentioned that you maybe need the cash within 2 years that’s relatively short timeframe. If you go in the market now with lump sum there is a possibility that you will have less in 2 years.
ESG products generally have higher fees than identical products which are not advertised as ESG. I recommend avoiding them or at least comparing them with standard products. In most cases the companies which they invest in are exactly the same. More on that here:
There is no way to know for certain how the economy (and S&P500) will develop. That is why investing brings with it a certain amount of risk. Historically though, investing has paid off over the long term. If you plan to invest long term, now is as good a time to get started as any. Play around with this calculator a little to get an idea how investments in the Swiss stock market have performed compared to savings in Swiss saving accounts through the great depression, WWII, and many financial crises:
Cost averaging is a methodical and logical approach to investing. It diversifies your risk over multiple points in time. Investing all your money at one time is akin to investing all your money in a single stock: pretty much a roll of the dice. That is especially true at times when there is no sure way to know which way the market will go.
If you have 10+ years of timeframe, it doesn’t matter when you start. Difficult to believe but it’s time in the market that matters, not timing the market.
You are already not investing on the peak, on all-time high valuations, which has always been the big fear of investors.
Personally, I’ve started 10 years ago and on the meantime, if you read the headlines, it was a never a good time to invest for certain reasons or others. Either because we were at the top it because the correction was not done.
In the meantime up to today, I’m averaging 8% returns p.a.
It was 14% just a couple of months ago.