It’s about time, not timing when it comes to investing. As a Financial Advisor who is all about stability, security & long-term planning. Advising people when they should invest is always a tricky subject because no one’s got a crystal ball. We don’t know what is around the corner.
Currently, the markets are trading, the world is turning and the markets are making money. Those traders have predicted the next 12 to 18 months, already buying based on what they currently understand is going to happen. So what works in the market are things that are unpredictable, like Russia invading Ukraine, which wasn’t predicted.
What causes internal issues is when you have a government not becoming political, which shocks the city with budgetary changes that they weren’t expecting. That can cause a lot of market volatility and the competence of the British pound and also the government in paying back those debts. So that was quite unpredictable, and that was not normal, which is why sometimes things take a lot longer than the government or those other reasons for them to, in terms of rolling things out and making changes, because there are several layers to it.
It’s complex, the economy is a very complex, multi-layered piece. So, with that in mind, that’s creating a lot of fear at the moment. We’ve had the Ukraine war, we’ve had a changing policy of the government with Boris Johnson, we’ve had police trust, we’ve had a new Chancellor appointed and, who knows what Prime Minister we’re going to have by the end of 2022. Warren Buffett’s rule is that the best time to invest is when everyone else is fearful. So if that’s the case, I’d say there are quite a lot of people in fear right now and my audience is usually women. So they tend to be risk-averse, ie they don’t like to take unnecessary risks. But with this, when you’re investing, there’s always a degree of risk. Generally, the stock market, if you look at hundreds of years of data and the trajectory over a long period, makes money, it makes money on an ongoing basis. And on average, they say around eight to nine percent depending on how you’re investing.
When you have times of fear and times of change, and times of uncertainty, crisis, and indecision, sit on the fence, wait and see what happens. That’s not the time to have to worry and be fearful. It’s the time to count your eggs, count your chickens, and say, Okay, well, what risk here can I afford to take? What amount of indecision can I afford to take? And I always like to think of it as you’re not putting all your eggs in one basket and doing everything all in one go.
Most financial advisors will love anything that drip feeds into something. So let’s just say you’ve got a million pounds to invest, you wouldn’t just, straight away put all of that and invest it all in one go, you would do that over a period, maybe six to nine months or even twelve months to two years, where you’d invest that over a longer period because it creates longer diversity reduces your initial risk that you could be buying. Not the best time. Who knows when the best time is? If you’re thinking even smaller than that, then you might be thinking maybe it’s only 100 pounds a month that you’re going to start investing, then you are doing that when the market could be at the cheapest, and therefore having that compound effect month on month, where that pot in a year, we’ll be more than what you had originally.
So, when the bounce back does happen, and we have to start to see greater returns in the market over a longer period, you will start to see that money grow that much quicker. So having that long, long-term stable effect. But how do we know when we’re at our lowest point? Well, we don’t really, but we can look at where things are currently standing. If you look at the footsie 100, that’s down about 10% from the pre-pandemic, so there are not great returns there. If you want to make quick wins, there are no great gains there. But we’re still down on what I would expect it to be at. Then, if you look slightly further afield in terms of their ratio, the footsie 250, which’s currently 30% below its highs, that’s a lot more than the footsie 100. If you look at the s&p 500, which is the most influential global index, which’s about 25% below, its an all-time high. Then if you look at the NASDAQ 100, that’s about 30%. Off, it’s an all-time high. So you could say, now’s a good time to invest. Because if we are at our lowest point, when it does bounce back, you will then make greater returns with your money, having a bigger effect.
Now, do we know if that 25-30% or 10% is going to be made up in the next six months, eight months, or 18 months? That is what we don’t know. And that is why investing is a long-term investment. You should never invest money that you immediately need in the next five years, for an emergency of any kind. Because even in good times, we don’t know if that money is going to make it back to where it should be originally.
Now, people that are already invested have a financial advisor, and already have their money invested in the stock market themselves. Again, now is not necessarily the time to dump out and take all your money out whilst you’ve had those losses. For some, it’s a good time for them to top up their pensions, top up their investments, so that when they do bounce back, they’re also then making those greater gains, again, long term. But whilst we’re sitting in this indecision and fear, it’s very hard for people to make these decisions, which might be because they’re business owners. And they’re worried about what’s going to happen to their business over the next year. But they’ve got profits in their business, what should I do with it? How much could I afford to invest in their pension? And so again, I believe in taking a varied approach to it looking at your outgoings, making sure you’ve got the backup funds, that you’ve got maybe 3-6-8 months’ money, and then say, Okay, well, I could afford to invest, maybe not all of that £40,000 allowances that I have, but I could maybe do £20,000 of it. It meant taking things with a more balanced approach, looking at what corporation tax you have to pay and reducing your corporation tax by making pension contributions.
You might not be a business owner. You might be employed, you might want to think about unemployment coverage through work, or you might want to think about increasing your pension contributions through your salary or your current pension through work because your current payroll can equally reduce your income tax as well. So there are numerous things that this could be a good time to invest in. It’s all about making a strategic risk decision. Indecision is not the right decision. It’s about knowing what your options are, and making an informed decision about the level of risk you are willing to take. So is now a good time to invest? Anytime is a good time to invest, it’s deciding when it is right for you.
If you wish to have any other financial or regulated financial advice, do check out my regulated website, Evolution Financial Planning, we do have a financial well-being assessment, which is free for you to go and check out and see how that can help you.
These are ideal if you want to know when you can retire and when you can reach the milestones that you wish for you and your family with the investments you may or may not have yet so that you can make more informed decisions about your finances. We put that information into a lovely little tool that I use and it lets me know what you need to be investing in and what sort of returns in order and for how long, and that will tell you how much you might be shortened by or what you need to increase that by.
If that sounds of interest to you, head over to Rebecca Robertson’s website for Lifestyle Financial Planning here 👇