There isn’t a “best” time to start investing in the stock market. Here’s why
During periods of market uncertainty and volatility, many investors can see a great deal of value wiped from their portfolios.
Indeed, the Guardian reported in March 2020 that the FTSE 100 posted its biggest quarterly fall in more than three decades after investors reacted to lockdowns imposed to slow the spread of Covid-19.
Even more recently, Russia’s invasion of Ukraine in early 2022 saw the FTSE 100 dip again, with Sky News reporting a 3.9% fall in a single day.
Events like these can dampen investor confidence – in fact, research published by FTAdviser suggests that investor confidence is still below the level before Russia’s invasion, more than a year on from the initial event.
This can lead you to put you off investing until you perceive it to be the “right” time, delaying putting your money in the market while you wait for the perfect opportunity.
Yet in reality, this might not be the wisest approach for your money, for the simple reason that there isn’t really ever a “best” time to invest.
In reality, the most sensible time to start investing in the stock market is now. So, find out why, and how a long-term approach to your investments may be a more suitable strategy for achieving your goals.
You can never truly predict how the market will react to global events
It is inevitable that stock markets will rise and fall over time, which is why the idea of choosing the perfect moment to invest seems so tempting – for example, if you were to invest the day before a significant rise, the value of your holdings could increase rapidly.
However, the main problem with this approach is that you can never truly predict how markets will behave or respond to global events.
JP Morgan figures reported by CNBC make a fascinating example of why this is the case. The asset management giant examined the 10 best days for returns of the S&P 500 Total Return Index, an index of the 500 largest companies in the US, between 2002 and 2022.
Fascinatingly, the top two days for returns were found to be 13 October 2008 and 28 October 2008, returning 11.6% and 10.8% respectively.
With both of these two dates falling amid the 2008 financial crisis, you might have presumed that this was a “bad” time to invest. Instead, this period produced the best two days for returns of this particular index.
Meanwhile, the third-highest returns of 9.4% were recorded on 24 March 2020, just days after the announcement of lockdowns around the world to slow the spread of Covid-19.
Markets can be remarkably unpredictable when considered over short time frames, and these figures go to show just how difficult it would be to find that mythical “best” moment.
The historical probability of returns favours those who invest for the long term
With this idea of short-term time frames in mind, it’s also worth noting that, historically, the greater odds of positive returns are often achieved over the long term.
Research by Nutmeg assessed this idea, looking at global stock market data from between January 1971 and July 2022.
The investment platform found the odds of positive returns on any randomly chosen global stock held for 24 hours were just 52.4%. But the longer this was held, the greater these odds, increasing to:
- 65.6% held for any random quarter
- 72.8% held for one year
- 94.2% held for 10 years.
Of course, historical returns are no guarantee of future performance. But even so, this data makes a case for a long-term approach, rather than one of trying to time the market.
It’s important to keep a steady hand when pursuing a long-term strategy
With the difficulty of accurately predicting when markets will rise or fall, and the potential benefits of holding investments for extended periods, you can see why a long-term strategy could be preferable.
One crucial element of investing in this way is to remain calm during periods of uncertainty and volatility, keeping a steady hand and avoiding the knee-jerk temptation to sell when markets dip.
As you’ve seen, markets typically rebound to increase in value over time. So, it can often be a better course of action to hold onto your investment, as it could recover.
Meanwhile, by selling for a lower value, this will only serve to make your losses real. For example, if a stock you hold loses some of its value, this is a theoretical loss on paper until you sell it for a lower price than you bought it and make it real. This is called “crystallising” losses.
Just as trying to time the moment you enter the market, it’s equally important to carefully consider when you exit it, and how this suits your long-term investment strategy.
We’ll help you manage your portfolio to achieve your goals
Ultimately, the true purpose of creating a portfolio and putting your money in the market is to help you achieve your goals – in fact, your investment strategy is just a part of your wider financial plan.
That’s why, above all else, you should ensure that your investments are in line with this plan in terms of your personal risk tolerance, and supporting you in hitting these targets.
If you’d like to find out how to pursue a long-term investment strategy that helps you reach your financial goals, please get in touch with us at Britannic Place.
Email firstname.lastname@example.org or call 01905 419890 to speak to us today.
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.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.