Is now a good time to invest?
There’s a lot going on at the moment, with COVID-19 continuing to create lots of uncertainty. When will it be over? Will it be over at all? What will it do to the global economy? What will it do to the way businesses operate—and will those changes be permanent?
At the same time, there’s the response to COVID-19. For example, interest rates are historically low, so any money in your bank account makes barely any returns. And those low interest rates have an impact on the value of things like shares and property.
Like we said—lots of uncertainty! So you may be wondering if you should start investing (if you haven’t already), or if you should continue to invest (if you’ve already started).
It’s up to you. But here are a few things you can think about. These are just a few of the things to consider when you’re thinking about whether to invest. There’ll be other things outside of this blog post, so make sure you do your own research.
Your goals and your risks
One important thing to think about is whether it’s a good time for you to invest. What are your goals? What are your financial responsibilities? Do you have an emergency fund?
For example, if you’re going to need your money soon, it may not be the best idea to invest all your spare money into long-term, high-risk growth investments that will go up and down in the short term.
This is something you may want to think about regardless of what’s happening in the global economy. After all, a booming global economy is not going to be of much help if your car breaks down and you don’t have an emergency fund. At the same time, if you can ride the ups and downs for 10 years or more, then it may be worth investing for the long term.
You might also want to think about your personal strategy and plan. What’s your risk tolerance like? Are you confident that you’ll be able to hold on for a long time? And why are you investing in the first place?
The answers to questions like these will help you figure out if it’s a good time to invest.
Your time horizon
Over time, investments tend to gain and lose value. There are dips and peaks. This may be important when it comes to your time horizon—how long you expect to have your money invested for.
If you have a short time horizon, it’s very hard to time the market to make sure you buy in a dip and sell in a peak. For example, if lots of share markets are at record highs, can you accurately predict how high they’ll be in six months? Or will they be lower? Or about the same?
Of course you can’t, because you don’t have a crystal ball.
While past performance is no guarantee of future returns, well-diversified portfolios have historically increased in value over time horizons of 15–20 years or more. New technology has emerged, making businesses more productive, and more people join the global population of workers, consumers, and business owners.
If your time horizon is long, you have more time to ride out the ups and downs of the share market. Generally, day-to-day or year-to-year fluctuations tend to get smoothed out by the overall trend.
Diversification
The pandemic and its response have had different effects on different investments. Some companies have benefited from the pandemic (like companies that make working from home easier, or provide online delivery). And other companies have been negatively impacted by the pandemic (such as airlines, and companies involved with tourism).
If you wind the clock back to mid-2019, you would’ve had no way of knowing that some companies would do so well while others would do so poorly.
This is why diversification can be important. A basket of investments gives you the opportunity to lower your portfolio’s risk and helps you get more stable returns.
You can also diversify the time you invest through dollar-cost averaging. This is when you invest the same amount on a regular basis. This strategy aims to help insulate you from short-term peaks and dips in an investment’s price.
The idea is that if a share price is fluctuating up and down over time, you’ll buy some shares when the share price is higher than the average share price, and receive fewer shares. However, you’ll also buy shares when the share price is lower than the average share price, and receive more shares.
Wrapping up 🎁
If you’re thinking about whether it’s a good time to invest or not, it’s important to consider your personal situation and anything happening in the global economy. Then, consider diversifying, understand your risk in relation to your time horizon, and make investment decisions that work for you.
And remember that you don’t have to invest! The decision to not invest at all is just as valid as the decision to choose a particular investment.
Ok, now for the legal bit
Investing involves risk. You aren’t guaranteed to make money, and you might lose the money you start with. We don’t provide personalised advice or recommendations. Any information we provide is general only and current at the time written. You should consider seeking independent legal, financial, taxation or other advice when considering whether an investment is appropriate for your objectives, financial situation or needs.
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