When's a good time to invest?
If you’re thinking about investing but you’re not sure where to start, this article could help.
Any investment should be looked at as a medium to longer-term project (five years or more). The sooner you start investing, the sooner your money could be working for you.
Investing can seem complicated. There are so many options and there’s so much jargon. We’ll explain a few investment truths, in terms that should make sense to everyone.
Some people try to ‘time the market’ – they watch how share prices are moving to find the perfect time to invest. They’re looking for prices to have fallen and hope to invest before they start to rise again. It’s very, very difficult to do. And all the time you’re waiting, you aren’t benefiting from potential growth. Any investment decision should be based on the medium to long term – which we take to mean at least five years.
We believe that good investment is about “time in the market”, rather than “timing the market”.
Seize the opportunities
By trying to time the market you can miss possible opportunities. A good example of this is the recent performance of the S&P 500 index. The S&P 500 is an index based on the price of 500 large US companies. Its share price movements provide a quick look at the stock market and the wider economy.
It has consistently hit record highs over the past seven years. People who were waiting and trying to time the market may have been thinking that what goes up must come down, and the rally would have to end sometime. Each time they delayed investing, they’re potentially missing out on their money working for them.
The unpredictability of the markets means that picking the perfect time to invest can be very difficult, if not impossible. “A journey of a thousand miles starts with a single step.” Lao Tzu
The same principle could be applied to investing by getting started. And to avoid having all your eggs in one basket, you could invest in funds that spread your money between different types of assets, including equities and bonds.
Is investing the right option for you?
When it comes to the potential for investment growth, timing is less of an issue than not being invested at all. You need to decide whether this is the right time to invest for you. You should base your decision on whether you have spare money that you can invest over the medium to long term. You also need to be aware of the risks that come with investing – markets can go down as well as up and you may get back less than you invested.
Investing should be part of your financial planning
Investing shouldn’t just be seen as a short cut to the potential for higher returns. You should make all your decisions based on your own financial planning needs. If you can’t afford to lose money, or you’re fearful of the market, then investing may not be right for you.
If you do decide to invest, focus on the longer term. Invest when the time is right for you and give your investments time to mature. This could give you the best chance of making investment work for you.
It’s important that you make sure you can afford to invest for the long term, before you invest. As long as you’re aware of the potential highs and lows of markets, any time can be a good time to invest. Rather than trying to start at the perfect moment in terms of market movements, it’s better to consider when investing might serve your wider financial planning needs. Have patience with your investments and give them time to bear fruit.
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