Is now a good time to invest in stocks? That’s a good question, and I don’t blame you for asking it, given how volatile the market is and how it looks like a market crash is coming soon.
If you already invest in the stock market, as I’ve suggested in other blog posts, you might be wondering if now is the right time to keep doing so. I know how hard it is to see your investment fall below your capital.
This blog post should help you decide if now is a good time to invest.
The stock market is a public place where stocks can be bought, sold, and issued.
Stocks, which are also called equities or shares, are a small piece of a company.
This means that each company’s performance on the stock market is different, but the overall performance of all companies tells us if it’s a bear market (a market in which share price is falling) or a bull market (a market in which share prices are rising).
This also means that if the market is going down, some companies’ stock prices will go up and vice versa if the market is going up.
When we look back at the stock market over the past 100 years, we can learn a lot. This is important for all investors.
When we look at the market cycle, we see that there are always bulls and bears, and a crash is always coming, but over the last 100 years on average, it has always gone up.
When a market drop seems to go on and on, it’s normal to feel scared.
The main things that cause stock market prices to change are supply and demand.
Past performance is not an indication of future performance but based on how the stock market has done in the past, we know that it has always gone up.
This means that even if your portfolio does badly in a single year and you lose money, you’re likely to get it back in a few years if you bought the right assets.
It’s not timing the market; it’s time in the market.
People often think that investing is about trying to guess when the market will go up or down. That you need to know what will happen in the future so you can buy when prices are low and sell when they are high. The problem is that no one knows for sure what the markets will do.
Instead of trying to time the market which is a trader’s trait, it’s better to focus on time in the market. That means you have to leave your money where it is for at least 5 years. Because the longer you invest, the more likely it is that you will make money.
Are you a long-term investor or a trader?
It's not timing the market; it's time in the market.
Every time you earn money on your investment and keep adding that interest earned or capital gain to the initial investment, you raise your principal and, as a result, your interest. This is how compounding works.
For example If you invest £100 and you get a 10% return, you have £110. If you leave that money in the stock market and get another 10%, that’s 10% of £110, not £100, and so on.
The best way to invest is always to do it consistently, no matter what is going on in the market, imagine making regular investments and allowing the power of compounding to do its work over long periods
It’s always best to start investing as soon as possible. Before you start building your portfolio, there are a few important things you should think about.
Before you invest, you should check your financial situation. This means you want to know if its a good or bad time to invest. You can do this by answering a few questions.
You need to ask one question to help you set clear goals. What will you do with the money? How you answer this question will affect every other choice you make.
Having a clear goal will also help you keep things in perspective when the volatility of the market makes you feel like you can’t handle it.
If you look at the fine print of any investment, you’ll see that it has risks. However, some investments have a higher level of risk than others.
Risk tolerance is the amount of risk you’re willing to take with your investments.
How aggressively you can invest without losing sleep will depend on how you’ll react if your portfolio drops by 10%, 20%, or more
Your age, income, and goals can also help you decide how risky your investment should be. Depending on these, you may want a portfolio with many risks or you may want to play it safe and have a conservative portfolio.
For example a 25 year old should go all in on stocks while a 60year old with 3 years to retirement might want to have split of 65% equity and 35% bonds with cash reserves for the next 5years
Warren Buffett said In a shareholder letter issued to Berkshire Hathaway shareholders in 2016
“Over the years, I’ve often been asked for investment advice, and in the process of answering, I’ve learned a good deal about human behaviour. My regular recommendation has been a low-cost S&P 500 fund.”
“Don’t put all your eggs in one basket,” a saying I heard as a kid, applies to your investment strategy. Diversification is the key to any long-term investment plan.
Diversifying your portfolio is another way to protect it. A great option is to invest in the S&P 500 or the total stock market index funds. These funds have many advantages but my best is that its low cost
As an investor, you should think about the long term. This means you should buy and hold, especially if you are saving for retirement.
At the time of writing, inflation in the UK is 9%, which is the highest it has been in years. The highest savings account rate is 3%, which means that any money in a savings account is automatically depleted and the value of that money shrinks every year.
The global economy has suffered as a result of the pandemic and one of the results of that is the high inflation we are experiencing now, ensure your funds have the best chance of growth.
I believe these are the best ways to invest whether you are a beginner or pro, it’s simple, can be automated and is cheap.
Over 90% of my investment portfolio was built with this simple strategy and continue to do so without the extra cost of financial advisors
Use tax-advantaged accounts, such as a stocks and shares ISA and a pension. In the UK, you are allowed a tax-free ISA allowance of £20,000 and a pension allowance of £40,000.
This is my first strategy for building wealth; by using these allowances, I protect my earnings from dividend and capital gains tax.
We already talked about diversification, and index funds are an easy way for me to do that with my portfolio. I put money into two funds through the Vanguard platform.
These funds have in them tech companies, energy companies, pharmaceuticals etc companies from different industries and in different locations with global products, it cant be more diverse than that
I buy consistently every month, whether the stock market is at record highs or in a crash, I buy on a regular basis and plan to continue for a long time as long as I have an income
If the strategy I use doesn’t appeal to you ask yourself the following questions
If your answer is No to any of the questions above please feel free to use the strategy
Building wealth slowly is so underrated
The best time to invest is yesterday So, you should think about whether you want your money to go further. If the answer is yes and you’ve taken care of the necessary steps (like paying off high-interest debt), then now is a good time to invest and I believe it’s a good idea to take advantage of tax advantaged account.
This is also applicable of you investing a lump sum or small amounts
