Is Now a Good Time to Invest?

Why are people frightened of investing at the wrong time?

Because the nightmare scenario is incredibly easy to imagine.

You save £20,000.

You finally decide to invest it.

You press the button on Monday.

On Tuesday, the stock market falls.

And by Wednesday you're staring at £17,000 thinking:

"Excellent. Twenty years of saving and I've managed to break it in 48 hours."

That fear is completely understandable.

The problem is that avoiding it requires you to know what markets are going to do next.

And that's the bit nobody can reliably provide.

Why can't I just wait until markets fall?

Because you'll need to answer two questions correctly:

When should I stay out?

and then:

When should I get back in?

The second one is usually harder.

Imagine markets fall 10%.

Do you invest?

Or wait for 20%?

They fall another 5%.

Now?

Then they recover 8%.

Have you missed it?

Or is this just a temporary recovery before another fall?

Suddenly something that sounded simple becomes a series of predictions.

Steve's observation

"I'll invest when things settle down" sounds incredibly sensible.

The problem is that markets don't send you an email saying:

Dear Steve,

Everything has now settled down.

Please feel free to invest.

Kind regards,

The Stock Market.

By the time everything feels comfortable again, markets may already have moved.

What if the market looks expensive?

This is another common concern.

Perhaps you've seen headlines saying markets are at record highs.

It can feel completely logical to think:

"Surely I should wait until they're cheaper?"

But a market reaching a new high doesn't tell us exactly what happens next.

Markets can fall from highs.

They can also reach a high and subsequently continue higher.

And even professional investors don't have a reliable method of identifying every market peak and bottom in advance.

This doesn't mean valuations are irrelevant.

It means "the market is high" isn't, by itself, a complete investment strategy.

Your timescale changes the question

Suppose you need the money in eighteen months.

Whether markets might fall next year is extremely important because you may not have enough time to recover.

Now imagine the money is intended for something fifteen or twenty years away.

A market fall next year may still be unpleasant.

But it becomes one period within a much longer investment journey.

The FCA encourages people to approach investing with a timeframe of at least five years and to recognise that investments can fall in value.

Time does not guarantee investment success.

But it changes how much significance you may need to place on what happens immediately after you invest.

What happens if I invest and markets immediately fall?

Your investment value could fall.

Potentially significantly.

That's something you need to accept before investing, not discover afterwards.

Imagine investing £50,000 and subsequently seeing its value fall to £40,000.

There are two separate issues.

The first is emotional:

How would that make you feel?

The second is financial:

Would that loss force you to change your plans?

If you're uncomfortable but can leave the investment alone because the money isn't needed for many years, that's one situation.

If the fall means you can no longer afford something you need next year, that's very different.

That's why we keep returning to capacity for loss, not simply willingness to take risk.

But surely there are better and worse times to invest?

With hindsight?

Absolutely.

Looking backwards, we can identify wonderful times to have invested and terrible days to have invested.

Unfortunately, hindsight is an investment tool available exclusively after you've needed it.

The question isn't whether market timing would be useful.

Of course it would.

The question is whether you can reliably do it in advance.

That's considerably harder.

What about keeping my money in cash while I wait?

That's an option.

And sometimes cash is exactly where money belongs.

We've already covered this in:

Should I Save or Invest My Money?

and:

How Much Money Should I Keep in Cash Before I Invest?

But waiting also represents a decision.

If markets rise while you're waiting, you don't participate in that investment growth.

Meanwhile, inflation can reduce the purchasing power of cash over time.

That doesn't mean:

"Get your money invested immediately."

It means there are consequences to both actions.

Investing has risks.

Waiting has potential costs.

The job is to understand both.

Could I invest gradually instead?

Possibly.

Someone with a lump sum might decide to invest it immediately.

Someone else might prefer to phase money into investments over a period of time.

Regular investing can also happen naturally when somebody invests monthly from their income.

Phasing can reduce the emotional impact of committing a large sum on one particular day.

But it doesn't eliminate investment risk.

And keeping part of the money in cash while phasing means some money remains outside the market for longer.

Neither approach is automatically right for everybody.

This question deserves its own guide, so we'll deal with it properly in:

Should I Invest a Lump Sum or Invest Monthly?

What should determine whether I'm ready?

Before worrying about market forecasts, check the things you can actually control.

Ask:

Do I have appropriate emergency savings?

Have I accounted for money I'll need over the next few years?

Is expensive short-term debt under control?

What am I investing for?

How long can the money remain invested?

How much investment risk am I taking?

Could I financially withstand a substantial fall?

What am I paying in charges?

Is the investment appropriately diversified?

Those questions aren't as exciting as predicting the next market crash.

They're considerably more useful.

What Should I Do Next?

Instead of trying to answer:

"What will markets do next?"

write down the answers to these three questions:

1. What am I investing for?
2. When am I likely to need the money?
3. What happens to my plans if the investment falls substantially?

If you can't answer them, don't worry about predicting markets yet.

Understand the plan first.

Then we can deal with another question that naturally follows:

Should I put the money in all at once, or gradually?

That's next:

Should I Invest a Lump Sum or Invest Monthly?

The Open Door Wealth View

People often think successful investing begins with knowing what markets will do.

We think it begins somewhere considerably less exciting.

Knowing what you're trying to achieve.

Nobody gets tomorrow's newspaper today.

Markets will rise.

Markets will fall.

There will be periods when investing feels easy and periods when every headline appears determined to frighten the life out of you.

A good financial plan shouldn't require you to correctly predict all of them.

So before asking:

"Is now a good time to invest?"

ask:

"Am I in a good position to invest?"

That question is actually answerable.

Suggested Call to Action

Waiting for the "perfect" time to invest?

Before trying to predict what markets might do next, it can help to understand your objectives, timescale, existing savings and pensions, and how much investment risk you can genuinely afford to take.

Open Door Wealth can help you understand the bigger picture before you decide what happens next.