What is your mentality around investing? Some investors will see opportunity when markets are low, a chance to invest at a discounted market point and watch their money ride the wave back upwards. Other investors will feel fear when markets drop, and some may even consider withdrawing their investment, fearing that markets could drop further. Regardless of what is happening with market fluctuations, it is only when you sell your assets that a value is crystallised.
The truth is, timing the markets is very difficult, and investors shouldn’t get too carried away with either lows or highs in the markets. A long term perspective is key, and as the classic saying goes “it is time in the market, not timing the market.”
For example, in 2020 when markets dropped due to the pandemic, it is only with retrospect that you can point to the low point and know that was the optimal time to invest for the bounce back. If you try guessing market lows, you could easily guess wrong and see markets continue to go down. Or you could end up investing at what turns out to be a market high – there’s just no way of knowing.
Time is on your side
A more sensible mentality may be to focus on the time you’ll have invested. For example, at age 40 you may set your Pension goal to have a set amount accumulated in your Pension pot by the time you retire in 27 years at age 67. You know you have 27 years to reach the goal, and you know you can potentially close the gap to goal with regular investments.
This long term perspective can be helpful in realising short term events, such as the pandemic or energy crisis, are just small moments in a bigger picture. If you have another 27 years to go, you are unlikely to look back in 2050 and think that what happened right now was make or break for your investment. Think back to what was worrying you even just ten years ago, do you even remember? Short term concerns are often washed away with time.
And remember, even if you are approaching retirement or are already retired, you may still have a long term period left in which you are invested. People are living for decades after retirement, and that’s time in which your investment may still be invested and growing.
What you also need to remember is that investment does involve risk, and past performance isn’t a guide to future performance. You may be impacted by losses if time isn’t on your side in your investment. Another concern to consider is if you take your Pension too early or withdraw too much you may deplete your retirement funds earlier than anticipated.
What other investment strategies are there?
Instead of trying to invest at market lows, consider regular little and often investing as a potential strategy. Regular investments could be sufficient for some long term goals, as lows and highs in the market could be smoothed out over time.
With this in mind, rather than timing the market, it could be a better idea to simply set up a direct debit into your investment and let time work its magic. This is sometimes referred to as ‘paying yourself first’ or ‘set and forget’ into your investment.
The other thing to consider with little and often investing is that it enables pound cost averaging. For example, if you invest £100 every month for 10 months, you are smoothing out the potential price point of the units bought. If you instead invested £1,000 in one month, you risk buying at a market high. By drip feeding your money into the markets you average out a price point..
Of course, investing in a lump sum could still make sense, as time in the market matters more than timing the market. Every investor will have different circumstances and you have to work out what investment approach that is best suited to your circumstances. Speak to a financial adviser if in doubt.
Investing at any time is easy with impulseSave® in the True Potential app, or speak with your financial adviser.
Setting a regular investment habit is easy with True Potential, simply log into the True Potential app, select your investment and add a direct debit. Or, use impulseSave® to top up now. By focusing on the long term habit of investing, you could close your gap to goal over time, rather than worrying about lows in the market and the anxiety associated with market dips.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. ISA and Pension eligibility and tax rules apply. Tax is subject to an individual’s personal circumstances, and tax rules can change at any time. This blog is not personal recommendation or financial advice. Past performance is not a guide to future performance.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.
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