Is it a good time to buy into the market now?
A really common question and one which, as you have probably guessed, has a multitude of answers.
What most people are trying to do is time the market. This means to pick a point to invest in the belief you are buying low then will sell out in the future at a higher level having made a nice profit. That sounds great and is what virtually all investors are trying to achieve, the problem is it is very hard to do. And that’s not just at the retail investor level, even most professional investors are notoriously bad market timers.
Why is it so hard then? Two words, fear and greed.
It is extremely difficult to have the confidence and knowledge to sell out of your positions when the markets are roaring and everybody is confident and bullish. It is even harder to do the opposite and buy into a tumbling market when there is panic all around. But investment theory says that is what we’re meant to do. The problem is that the theory has no emotional content. People on the other hand, do.
So what else can you do?
Actually, there is a different way to invest that has two distinct benefits over market timing. First it means you don’t have to worry about any of the above emotion and secondly, over time it has been proven to provide significantly higher returns.
Have a regular savings plan.
The regular savings plan allows you to drip feed your hard-earned money into your investments at a steady rate. This means you will be involved in the market on the good days when the market rallies, and also allows you to buy after the market has fallen and everybody else is panicking. Having a regular savings plan also allows you to invest in an appropriate strategy according to the amount of risk you’re comfortable with and not have to concern yourself with deciding on a whim what investments to buy and sell.
Understanding finance is so much easier when you have a plan. If you’d like to talk to us about creating a financial plan for you and your family, please get in touch.
Adam Walkom, Independent Financial Consultant, Sterling & Law Group plc.