Perhaps it’s fears of what might happen post-Brexit that makes you worried about investing?
Perhaps you’re waiting for Donald Trump to be kicked out of office?
Or perhaps because you know that stock markets have pretty much been going up for the last 10 years you think they can only go down now and you want to buy in at the right time?
I often hear from new clients that they are unsure about investing their money right now because of this or that. Usually their concerns are linked to a subject that’s been in the media for some time.
But actually when it comes to deciding the right time to invest, reading, listening or watching the news can be one of the worst things you can do and should not really affect your investment decision.
Deal with these questions first if you are worried about investing
If you are worried about investing at this time you need to go back to basics and deal with these 5 questions:
- Why are you investing in the first place?
- Have your circumstances changed from the time you decided you wanted to invest?
- Will you have to pay taxes if you sell an existing investment?
- What else are you going to do with your money?
- Are you feeding on too much news?
I discuss these questions in more detail in a previous article “Is it still a good time to invest?”
For now, if you have dealt with the above 5 questions I want to let you know a thing or two about stock markets over the long term.
4 stock market facts that may stop you being worried about investing
#1 – There’s usually quite a dip every year
Whilst we tend to remember and focus on the big shocks like the 2008 financial crises or the tech bubble in the early 2000s, each year most stock markets tend to go through around a 10% decline at some point during the year.
This is typically known as a ‘correction’ and as there’s never really a big news story behind it, the markets tend to recover without people ever noticing it.
Less than 20% of these corrections ever turn into a ‘bear market’ which is when stocks typically fall 20% or more.
#2 – Nobody can predict what will happen
Fund Managers are paid big money to try and predict the stock market. Their large marketing budgets make them appear ‘experts’.
But history is full of predictions that never came true.
In Tony Robbins’ book Unshakeable he illustrates 11 big predictions from large investment institutions of market crashes since 2012 and none have come true.
Remember investment brokers are not too bothered if you stay invested, they just want you trading. Buying and selling so they can make a fee each time.
#3 – Over the longer term the stock market keeps rising
Even in spite of some major world events over the course of history the stock markets continue to rise.
That’s not to say events like the world wars, the great depression and financial crises have not had significant impacts on stock markets and caused large falls. But over the longer term the market always recovers and continues its journey upwards.
#4 – You can ‘lose’ far more by being out of the market
Using Vanguard’s ‘Importance of Discipline Tool’ you can see the impact of trying to time the market, getting out when things go bad and getting back in when things look good.
In one example you can see that over the period 1990 – 2015, if you invested £10,000 and you pulled your money out when markets dropped 25% and bought back in when they had risen by 15%, your overall returns would be over 15% lower (£57,720 instead of £68,327).
Much of the data shared above comes from a brilliant article from the Visual Capitalist website and they cover all this content in a beautiful infographic. If you are worried about investing I urge you to print the picture out and stick it on your wall.
To be clear, I am not saying the stock markets always go up and that you will always see a positive return no matter when you invest.
There will definitely be times when you see the value of your investments go down and it will be scary. But providing you have the right strategy, are clear on your investment objectives, the longer you do invest the more chances that you will see a significant positive return.
Remember this….. “It’s not about TIMING the markets, it’s TIME IN the markets that counts”.
Want to know more? Download our free Simply Investing Guide from our eBook store.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.