Having weathered a global pandemic over the last 2 years, you’d think we’d be due a bit of good news for a change. Unfortunately, 2022 will be a tough watch when the producers of Reeling In The Years get to work on their latest instalment. We are still investing in challenging times!
Rising interest rates, spiralling inflation, astronomical hikes in fuel prices and most tragically of all, Russia’s brutal invasion of Ukraine, have all been constant features in our daily news.
So, with so many economic and geopolitical issues going on is it any wonder, I am being asked regularly, is now a good time to invest?
The key to investing in challenging times is to remember that it is ALWAYS about time IN the market and not about TIMING the market.
The more time you apply to an investment, the lower the risk it becomes.
Making short term predictions or investing based on a ‘hunch’ is no different to walking in to Paddy Power and placing a bet.
For individuals with money on deposit you will not be surprised to learn that the banks are not going to pass on the forthcoming interest rate hikes for quite some time. With inflation currently at a 30-year high, the real value of your savings is losing money.
Having said that, everyone should have at least 6 months net income on deposit. They should also have funds to cover emergencies and future large spends such as holidays, home improvements or family education costs for the next 3-5 years.
Don’t bother shopping around for a decent rate, your money on deposit is there to be accessible and secure not to generate growth.
For those with savings that are not required in the short term or you want to have the funds 5 years from now you need to commit your money to an investment that will generate growth.
Long term consistent growth can only be achieved by investing in the great companies of the world. That is through stocks and shares or equities. The portion of your investment in equities should be linked to your comfort level and attitude to risk.
Applying time to your investment is one way to manage risk and generate growth. The other is to spread your investment across different asset classes.
A balanced investment will generally invest 50%-65% in global shares with the remainder spread between bonds, property, commodities, and cash.
Even within a balanced portfolio most funds will be invested in over 500 companies. So you are never putting all your eggs in one basket.
The final and most important component of investing in challenging times is to be disciplined and stick to the plan.
It is quite natural to want to cash in or step out of your investment during periods of volatility. History has taught us that a bell doesn’t ring when the market bottoms out. By attempting to invest when you think ‘the coast is clear’ is likely to result in you missing out on some of the days that deliver the strongest returns.
Your investment should be structured around your needs and your risk tolerance. It should be viewed as an important element of your overall financial plan. For that reason, it is important to seek out advice. An impartial professional advisor will work with you throughout your investment journey.
To discuss the investment options that are the right fit for you just get in touch with us here.
Source: Charts from Dimensional Fund Advisors 2022