We thought we would cut through the many myths that surround investing. We thought we would start with one of the most commonly used one – now is not a g0od time to invest.
Now is not a good time to invest
One of the most common questions we receive is whether now a good time is to invest. People raise any number of issues when talking to us about timing their investments, including political uncertainty, concern over valuations, and negative stories they see in the newspapers or wider media.
While the tone of media coverage on markets can often be alarming, the truth is that the best time to invest is often whenever you are ready to. Once you are invested, you benefit from the power of compounding returns, the name given to earning returns over time. The benefits of starting early, and allowing yourself more time in the market, can be seen in the chart below.
Aren’t markets becoming more volatile?
It’s true that market volatility has risen in recent years. But this is largely in response to central banks unwinding their stimulus programmes enacted during the financial and eurozone crises. If you look at it from a longer term perspective, however, it’s clear that market volatility is returning to its normal pattern of behaviour, rather than anything more sinister.
While market volatility may be unnerving in the short term, it does give active investors the opportunity to invest in good businesses at attractive prices. When markets over-react to short term fluctuations in economies, long-term investors can top up their exposure to strong businesses, helping to improve their long-run returns.
What if there is a recession?
While worrying about a recession is understandable, a long-term investor should be able to withstand a recession without significant cause for concern. To begin with, recessions are temporary, and the long-run path for economies and stock markets is to grow over time. Over time, the concerns that investors worry about are erased by the long-term growth in the economy.
Provided you have a sensible financial plan, and have not invested too much in stock markets, you should be able to wait out any short-term correction in prices, and keep on track with your longer term financial plan.
Does Brexit make this a bad time to invest?
Brexit will undoubtedly have an impact on the UK economy, but it doesn’t mean this is a bad time to invest internationally. Any well-run investment portfolio should include exposure to companies from around the world. This gives you access to a greater range of opportunities, and allows you to insulate your portfolio from the shocks that can affect individual economies.
Author: Chris Taggart, Investment Director at QuilterCheviot, https://www.quiltercheviot.com