19-02-2018

Time in the market, not timing the markets

This might seem sensible, but if you find yourself in this position it’s worth taking time to really consider your best option. The first thing to do is to remind yourself why you’re investing in the first place. Any investment should be made with the goal of achieving something you want, such as providing for your retirement; however, it’s important to remember that returns don’t run like clockwork.

Predicting short-term stock market movements is incredibly difficult, if not impossible. If it wasn’t, then every investor would be doing it and making their fortune easily. In order to counter any short-term shocks, one option is to make scheduled, monthly contributions to your investments if you’re using current income. This can position you over the long term whilst also helping to develop financial discipline. Those looking to invest a lump sum can also use this technique, splitting it into several tranches and investing over a longer period of time to reduce exposure to short-term risks.

Other ways to help maximise your results include investing as soon as you can in order to benefit from compounding, using tax allowances such as ISAs to reduce the impact of tax on your returns, and reviewing your annual saving total and increasing it when you can. Staying disciplined in your investments is key, as missing just a handful of the best days on the market can have a major impact.

2018 was until last week a good year so far for investors, but in a blink of an eye, the equity markets became volatile for several days. Many financial experts forecasted 2017 to be a worse year than it actually was, but that doesn’t mean these predictions can be forgotten just because the calendar has changed. Many are still expecting a market correction in the near future and with Brexit now just over a year away, it’s more likely to be a question of ‘when’ not ‘if’.

Enjoy the good times, but don’t focus on trying to predict exactly when things are going to change. If you’re planning to invest throughout your life, you can be certain that some years will be bad. Remember: long-term investors who keep to their plans are, more often than not, those who reap the greatest rewards, and if lump sums are to be vested, why not consider phasing these in, rather than putting the money in all at once?