If you’re still working to save for a comfortable retirement, one of the best things you can do to support your financial future is to invest in assets that are expected to beat inflation.
As such, we’d typically encourage you to invest small, regular sums to build a diversified portfolio aligned with your financial goals and specific time horizon.
In the event that you have a lump sum to invest, the same approach works – and the sooner you invest, the sooner you can start to enjoy the potential compounding growth.
But investing when markets are high could be uncomfortable. If prices appear to have reached a peak, you may be concerned that they’re more likely to head down than up.
Faced with this dilemma, some investors might decide to wait for prices to fall before investing more.
New highs are more normal than you may think
Understanding how market highs happen can help you make better, more informed decisions.
When you hear about “record highs”, it sounds like something that rarely happens. Temperatures in the UK this summer reached “record highs”, and there’s an in-built assumption that such events will remain unbeaten for some time.
But when looking at the market over the long term, a rising market is simply routine, and markets will regularly surpass old markers and set new all-time highs.
Historically, market declines can commence at any time (and often unexpectedly), so a “new market high” doesn’t automatically equate to lower returns over the short term.
In fact, on its own, a record stock-market high tells you very little about what might follow.
Waiting for markets to fall could be a costly mistake
Although waiting for markets to fall from so-called “highs” may feel like the sensible move, it could leave you hanging around for longer than you anticipated.
And all the while you’re not invested, instead of enjoying growth, your money is likely to be idling in a low-interest bank account.
Then, following a potentially long wait, if that market decline does eventually arrive, it will almost certainly be accompanied by bad news, since that’s what typically leads markets to fall. So, what should have been the ideal moment to buy turns into another reason to delay investing and wait until the cycle settles. Only then might you consider it safe to invest with confidence.
This is a lot of angst, and not only have you caused yourself undue worry, but you’ve also missed out on more time in the market and the potential growth that comes with it.
Here’s where the best investors succeed. Acknowledging that their timing will never be perfect, they go ahead and invest anyway – no matter what the markets may be doing at any given moment.
While you’re busy earning, make sure you also put your money to work
When retirement is still a little way off, and you have an adequate emergency fund to cover unexpected costs, investing money for your future will do more to help you reach your goals than spending time worrying about what the market might do next.
So, if you have money you can put to work, don’t let a “record high” put you off. Instead, invest when you have the funds available, or better still, invest a regular sum every month and drip-feed your money into the market.
This will help you to even out the highs and lows, and you’ll end up benefiting from dollar-cost averaging – when you invest and prices are high, you’ll buy fewer shares, but when markets are lower, you’ll buy more.
Meanwhile, if you have a lump sum you’re hesitant to invest in one go, divide it into equal amounts and invest it slowly on the same date over several months. The important thing is to ensure you set a schedule for when you’ll invest, so you avoid trying to judge whether it’s a “good” decision.
If you’ve been putting off making an investment due to current market levels, get in touch and we’ll help you make a plan that works for you and supports your long-term goals.
