The short answer is yes, maybe, probably.
The recent stock market volatility and declines in just about all sectors has led some investors to ask the question.
Is now a good time to invest?
‘Bear’ markets are inevitable, and so are ‘Bull’ markets. The only difference being that ‘Bull’ markets last a great deal longer than ‘Bear’ markets. The chart below shows the time periods of all ‘Bull’ and ‘Bear’ markets over the last 100 years.
One thing that we can be sure of is that investing will be volatile at times. But not all of the time. The value of investments goes up and down daily, however these movements are a very poor indicators of the long-term trend.
So, to the question – To invest or not to invest?
History shows that stock markets have always recovered from every set back in history. Could this time be any different? Well yes it could, however that is completely impossible to predict. For the stock markets to never recover would require the global economy to fall into terminal decline. Something that has historically not happened in the last 100 years.
As the stock markets have fallen from the previous high, there is the potential for gains to be made once the current situation is resolved. A note of caution though. The markets could fall further from here if there is further bad news.
If you are a long-term investor and could withstand a further fall in the markets, now may be a good time to invest. However, you need to have the stomach for a potential bumpy ride. The problem every investor faces with a decision to invest currently is that no one knows whether we are at the bottom or not. It could fall further.
It is probable that if peace broke out tomorrow, that the markets would immediately rally, and you would miss the boat. When peace does break out, investors could miss out on the full extent of the rise. It is only with hindsight that investors would know whether they had made the right decision.
The truth is that most investors remain on the side lines at these times, and some even move their investment to cash. As such, those they take no action miss out on the rebound and potential gains. And those that have moved into cash, convert their paper losses into real losses. And many find it very difficult to return to investing for a long time. Quite literally, they have had their fingers burnt.
We are also living through a period of higher inflation than we have seen for several decades. As such, the value of money is depreciating quite quickly now. For example, if inflation is currently 5%, the purchasing power of £100,000, will have fallen to £95,000 in 12 months’ time. Inflation is the invisible killer of your money. The effect of 10 years of inflation at 5% a year would reduce the purchasing power of £100,000 to £61,391. This courses a significant problem for people that hold a lot of money in cash savings.
Clearly this is only appropriate for the financially robust and investors that can both financially and emotionally deal with a bumpy and volatile period, which could be both short and long term.
I’ll leave it to you to decide.
This article should not be regarded as advice in any form, and I recommend that you seek individual advice from a professional financial adviser if you are considering investing now and at any time.
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As with any investment, there is no guarantee that the target return will be achieved, and investors may get back less than the amount they invested. Past performance and forecasts are not reliable indicators of future performance. Tax treatment depends on individual circumstances and is subject to change.