As stock markets fall, is now a good time to invest?
Thomas Dickson lists things to consider if you’re looking to invest or withdraw from the stock markets at the moment.
As the world watches on in horror at the continued Russian invasion of Ukraine and the resulting human cost, global stock markets are rocked by the uncertainty of a devastating war.
In the first week of March 2022, the London stock market suffered it’s biggest weekly losses since the start of the pandemic in March 2020. So is now a good time to invest?
Becoming a successful investor
It certainly feels like the world is in a very uncertain place. Political events are not the only issue affecting the markets.
Economically, the greatest challenge is soaring inflation, hitting levels not seen for several decades. As a consequence, interest rates and yields on bonds have started to rise. Global equity markets have started the year down.
This can all feel both gloomy and unsettling for investors.
Unpredictable world events have always, and will continue to create volatility in the stock market. As well as a fear that our financial systems are at risk.
Think back to the devastating geopolitical impact of 9/11, and the collapse of Lehman Brothers, signalling the start of the credit crisis in 2008.
However, over time, the markets consistently show that they recover from these events. So, in order to see real growth over time, investors must be in it for the long-term.
The markets are always subject to volatility, according to what’s going on in the world. So to be a successful investor it’s important to take a pragmatic approach.
Here are some key steps I recommend
- Work out your attitude to investment risk – how much risk you can afford/are you willing to take? It’s about finding a balance that you’re comfortable with during the good times as well as when the market and life get tougher
- Understand that there is a clear and direct relationship between risk and return. So if you want high returns on your investment, that is accompanied by a higher level of risk. If you don’t want to take too much risk, then your returns will inevitably be lower. And remember, if an investment sounds too good to be true, it is probably best avoiding
- Diversify broadly – it makes sense to avoid putting all your eggs into one basket. No one can predict which asset type, country or sector will do well in the future. So it’s best to invest across a broad spectrum
- Avoid looking back and wishing you owned more of what’s just done well. Chances are it’s not going to be what does well in the future
- Manage the cost of your investment closely. The investment management industry makes millions from investors every day. So it’s really important that you keep as much of the market return for yourself
- Take a long-term view – if you’re thinking you may like to take your money out after only a few months or two to three years, you have to question whether the stock market is the place for you. You’ve really got to think more in the long term if you want to increase your chances of a successful investment experience
- Be patient – there are no short-cuts to building wealth. It’s a slow process
- Stay calm and stay the course – there are always tough times in the market
- Avoid timing the market – you may think you can buy or sell depending on what’s going on in the world. But to do that consistently and reliably over a number of years is virtually impossible. Nobody can see into the future and I believe it’s best to avoid taking advice from people who say they can time the market
- Strategic approach – have a plan so that rather than investing emotionally and deciding what you’re going to do depending on where the market is, it’s best to have a long-term strategy which you can stick to.
The value of your investment can go down as well as up. You may not get back the full amount invested. When investing your capital is at risk.