Waiting for the right time to invest

The topic of investing in the stock market can crop up in conversation between family and friends from time to time. “Is now the right time to invest?” and “Should I hold off and invest when markets are lower?” are probably some of the most common questions asked.

And the truth is, both questions are pretty difficult to answer.

There’s never really a picture-perfect moment to invest or to sell. And buying in at the market low point and selling at the top is almost impossible to get right.

In this article, we look at why investing is all about time in the market, not timing the market.

We’ll give you information to improve the way you invest and make more of your money. But it isn’t personal advice. If you’re not sure what to do, ask for financial advice.

Time is money

Keeping our hard-earned money as cash is often seen as our safest option. Technically, it is. Unlike the value of investments, which can move up and down so you could get back less than you invest, the value of cash is seemingly protected.

But cash isn’t totally risk free.

We’re in a world where interest rates have been at record lows and inflation is usually threatening to rear its ugly head. Inflation is the rising cost of things we buy every day – it reduces our spending power, especially over the long term. So, it’s important for investors to understand how much cash they should hold and why.

But how much cash should you hold? There’s no magic number or percentage of your overall wealth you should keep as cash. You know your circumstances better than anyone. The best person to decide how much cash to hold is you.

Investing in the stock market generally yields better returns than cash over the long term. But it’s important to keep some cash tucked aside in your rainy-day savings pot for any unexpected emergencies. We think around three to six months’ worth of essential expenses held as cash to cover emergencies is about right.

If you’re retired, we think you should hold one to three years’ worth of essential expenses. For those in drawdown, you should consider holding a full three years’ worth of essential expenses.

It’s also sensible to hold some cash in your investment accounts to cover any charges – things like dealing charges and platform fees.

Any cash left over after covering the above, that you don’t need access to for the next five years, could be invested in the stock market.

Whether you’re worried about taking your first steps into the investing world or waiting for the right investment opportunity – putting off investing could hold back returns and erode the buying power of your money over the long term.

It could be time to think about the opportunities you might miss out on by not investing early enough.

Time in the market

So, is now the right time to invest?

There’s never a bad time to invest.

Investing is all about playing the long game – that’s at least five years, but ideally a lot longer. Taking a long-term approach with your investments helps cut out the short-term noise and with it, the worries about finding the right time to invest.

For investors, time in the market is a lot more important than trying to time the market.

Waiting for the right time to invest or tinkering too much with your investments can mean that you miss the markets’ most fruitful days.

Impact of missing the best 10 days in the UK stock market (2000 - 2021)

Past performance isn’t a guide to future returns. Source: Lipper IM, from 03/01/2000 to 31/12/2021 Figures based on £10,000 starting investment.

The chart above shows how missing the best days in the market can cost investors thousands. Although you would’ve been unlucky to miss them all, is it a risk worth taking? Remember investments rise and fall in value, so you could get back less than you invest.

In reality, which way the market moves today, tomorrow, or next week doesn’t really matter when investing long term. What matters is you stay invested and diversify your investments across areas you think will perform well over the next 5 to 10 years.

Ready to invest?

Whether you’re new to investing or with years of stock market experience, hand-picking individual company shares with long-term potential isn’t a walk in the park. It takes countless hours of research to find the stand-out companies of the future.

We think funds are a great option for simple and effective long-term investing. Funds pool together money from lots of investors. They invest in a collection of investments which are chosen and run by a professional fund manager, so you’ll benefit from the manager’s knowledge, expertise and research into lots of different companies .

Funds come in all shapes and sizes. Some funds invest purely in company shares, which could be considered for portfolios willing to accept more risk. Others hold a mix of investment types like shares, bonds, commodities and cash for a more conservative way to invest.

To help you get started, our investment research team have put together some fund ideas. But they’re not a personal recommendation to buy.

Investing in funds isn’t right for everyone. You should invest in funds only if you have the time and know-how to diversify your portfolio to help reduce risk.

Before investing, it’s important to check that the fund’s objectives align with your own and understand the fund’s specific risks and whether there’s a gap in your portfolio for that type of investment.

Remember, all investments go down as well as up in value, so you could get back less than you invest.