Is now a good time to invest?
One of the most common questions we're asked at Nutmeg is 'when is a good time to invest?'. Here we outline our view, backed by some compelling data around long-term investments.
Look for ‘investments’ in your favourite search engine, and there are plenty of articles and investor questions about market timing. We’ve all heard of ‘buy low, sell high’, a maxim that suggests that downturns in markets may look like a promising opportunity to invest. This is often referred to as trying to ‘time the market’.
When markets are volatile and trending down, some of us may panic and want to sell out. Others are likely to be tempted to invest in the hope of benefiting from a potential rebound. On the other hand, if markets are rallying, could it be time to join in now while the going is good?
At Nutmeg, we see little evidence that an 'all in' or 'all out' approach to timing the market works for most investors; we do not believe this is a useful way of thinking about investing and your financial future.
Why we favour 'time in' the market
Our investment principles, which are rooted in helping clients to maintain the investment plan that’s right for their own circumstances over the longer-term, mean that we would never suggest that investors try to ‘time the market’. After all, if you invest now, no one can be sure that markets won’t fall in the short term.
While timing the markets is not something we would ever recommend, we do advocate time in the markets, which we believe will, over time, likely recover from a downturn.
As exemplified in our recent quarterly update, markets can be swayed by many different factors, including macroeconomic expectations, data releases, company announcements, and geopolitical events.
Being able to accurately predict when these events will happen, and what impact they will have - either positive or negative - is impossible. However, as we'll illustrate shortly, staying invested throughout the ups and downs can help you maximise any long-term returns.
For us, it’s never a bad time to invest, and stay invested, so long as you have reviewed your current financial situation to ensure you will retain enough cash on hand for emergencies and have chosen the appropriate risk level and timescale that suits your goals.
A risk-rated multi-asset portfolio managed by professional investors, such as our Fully managed range, will stay invested with regular rebalancing and strategic adjustments from the portfolio managers to reflect the economic environment as it changes.
The case for long-term investing
Long-term investors can benefit by staying the course and sticking with their investment goals through the ebb and flow of markets. In fact, the longer you stay invested, the less likely you are to lose money.
Below is a chart that looks at data from developed equity markets between January 1972 and December 2023. It shows how the chances of suffering a loss went down over time.
No matter when you invested during this period, long-term investing would have dramatically increased your probability of avoiding losses. Although future market performance can never be guaranteed to play out the same way as it has in the past, as investors we can still gain a sense of longer-term perspective from this.
Yes, big movements over one day, or even several months, might seem of big significance today but are more likely to appear as a blip when viewed over several years.
Historical probability of loss decreases by holding equity longer (1972 – 2023)
Source: Macrobond; MSCI World Equity Mid and MSCI Large Cap Total Return in GBP, 4 January 1972- 8 December 2023
The benefits of 'drip-feeding'
With this long-term view of the markets in mind, rather than waiting for what might seem the ‘perfect’ time to invest, investors might instead consider what is called pound-cost averaging, or drip-feeding money into their portfolios at regular, say, monthly intervals via a Direct Debit instead of investing large one-off lump sums.
If you are thinking about investing in the context of a tax wrapper, Nutmeg’s drip-feed feature allows you to maximise your annual allowance before 5th April with a cash pot within an ISA, and then invest your money gradually over the months to come or when is most convenient.
This means that you can enjoy the tax benefits of a stocks and shares ISA or pension and also the reassurance that your money will be invested slowly but steadily rather than all at once. You can reduce the risk of buying-in just before markets drop and stay invested for the market recovery – the speed of which can be very difficult to predict.
Speak with an expert
Considering investing for the first time, and need information about different investment products? Book a free call with an expert from our team to discuss your options.
Our team can help you to get a clear view on different ISA and pension wrappers, as well as our investment styles. We can help you review your current investments, and can set out the options for you to make the most of your allowances. Get ahead with free financial guidance to set yourself up for success.
Risk warning
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Tax rules depend on individual status and may change. Past performance is not a reliable indicator of future performance.