With stock markets falling, is now the ‘right’ time to invest? It may seem like a straightforward question, but your personal goals and circumstances are far more important than market volatility.
Global stock markets have suffered due to the impact of the coronavirus pandemic, and you may have heard suggestions that now is the ‘perfect time to buy’. After all, in an ideal world, you want to buy when stock prices are low and sell at a high.
It’s not as straightforward as that and there’s no ‘perfect’ time that suits everyone. No one knows what is around the corner and even professional investors are unlikely to have considered the impact a pandemic would have when making decisions in 2019. So, it’s impossible to know what’s coming in the coming weeks and months. Whilst some commentators argue an economic crash is coming, others state the UK economy will begin to pick up once the lockdown measures are lifted.
It can be tempting to act on comments like “buy when prices are low and sell at a high”, but when it comes to investing, market dips shouldn’t be at the centre of your decisions. The volatility and numerous factors that have an influence mean it can lead to decisions that may not be best for you.
So, when is the right time to invest? That depends on your personal circumstances and goals. These should always be at the centre of your investment plans and influence when to increase your portfolio.
5 factors influencing the ‘right’ time to invest for you
1. Investment goals
What do you hope to achieve when investing? We all want returns when we invest money but it’s important to think about what you intend to use those gains for. Your aspirations should be at the heart of all financial decisions, including investment ones. Investment goals will influence the risk profile and time frame of investments too.
2. Time frame
How long money will remain invested is crucial to set out investment plans. You may be certain that stock markets have hit a low and will rise over the coming months, but if your investment time frame is just a couple of years, you probably shouldn’t invest. This is because investment markets experience volatility and investing with a short-term perspective may not give you enough time for the peaks and troughs to smooth out. As a result, the time frame should dictate whether investing at all is right for your plans and how much risk to take if you do. Generally speaking, you shouldn’t invest with a time frame of less than five years in mind.
3. Existing assets
What other investment products and assets do you hold? If a large portion of your assets is already held in stocks and shares, it may not be prudent to invest further. An investment portfolio should be well-balanced and diversified across a wide range of products, this can help reduce short-term volatility experienced and manage risk. Your asset allocation needs to be carefully considered when asking if now is the right time to invest, pouring more money into the stock markets can significantly change your exposure to risk and volatility.
4. Risk profile
There’s no one-size-fits-all solution when it comes to investing. One of the areas that should be tailored to you is the amount of risk you take. All investments involve some level of risk, but this varies significantly between investment options. There are numerous factors to consider when choosing a risk profile that matches you, from the investment time frame and overall financial situation to your attitude to risk. Investing in stocks simply because some sources claim it’s the ‘perfect’ time could mean making decisions that don’t consider your risk profile.
5. Wider financial plans
Investing isn’t something that should be looked at alone either, your overall plans and aspirations need to be factored in too. Would it make more sense for you to pay off your mortgage or invest? Do you need to build up a financial safety net before increasing investments? Or would it make sense to contribute further to your pension if investment goals are tied to retirement? Looking at the bigger picture can help you create a financial plan that provides a blueprint for your aspirations.
Amid the market uncertainty, it’s natural to have questions about your investments. Please don’t hesitate to contact us if you’d like to discuss any aspect of your investment portfolio and plans.
Pembroke’s approach to investing has always been tailored to you and your plans. Investments should always be looked at in the context of your wider financial plan, rather than as a separate issue. Pembroke’s unique Active Money Management process, managed in partnership with an award-winning professional investment manager, reinforces our responsibility to review and monitor your investment portfolio on a continuing basis to ensure diversity, reduce investment risks and to seek to improve returns over the longer term.
Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.