When to Invest if you don’t have a Crystal Ball
There are many reasons you might have capital to invest, perhaps you have received an inheritance, consolidated pension or saving arrangements, or sold a property.
The dramatic market sell-off we saw in February and March highlights the question – how do you know when it is the optimum time to invest?
The reality is that you don’t. Experienced analysts might be able to predict market cycles and trends to some extent, but nobody can say with absolute certainty that if you make an investment this week, it won’t be worth less next week.
Even if markets do fall suddenly, history tells us that over the long-term they will recover. If you invest in a well-diversified portfolio (spread across a range of different types of asset) it should just be a matter of time before the value of your investment rises again.
However, if the thought of taking a risk makes you uneasy, you may wish to consider ‘phasing’ your investment into the markets.
Investment phasing is the process of drip feeding your investment into the markets over a period of time. Let’s say you have £100,000 to invest, instead of investing it all today, you could invest £16,667 each month over the next 6 months. This way, if markets fall this month, you could benefit from ‘buying in’ a lower price point next month – you will be able to buy more shares with the same amount of money.
In falling markets you will benefit from phasing your investment, but if markets are rising the opposite is true so, as always with investment decisions, there is always an element of risk.
Without the aid of a crystal ball there are no absolute rights or wrongs. As long as you have considered the pros and cons and are comfortable with the approach you choose to take, your decision will be the right one. Try not to reflect on what could have been – everyone would have been better off with the benefit of clairvoyance!
This blog does not constitute personal advice, if you are considering making an investment please contact us to discuss your personal circumstances.
It is important to note that investing puts your capital at risk and that past performance is not a reliable indicator of future performance.