An adviser’s view - how to invest into the stock market during uncertain times

I’ve had a number of conversations with clients recently about when is the best time to invest. Over the long term, what matters is the time in the market, not so much timing the market. But the recent market falls and current volatility are causing many of my clients to talk about timing.

One individual approached me last week explaining that he had moved his investments into cash as the market fell but he intended to re-invest at some point. Getting out meant he avoided some of the recent losses. But to make such a move work, the timing of getting back in could be critical.

This article should not be viewed as personal advice, please seek advice if you are unsure if a course of action is suitable. Unlike cash all investments can fall as well as rise and you might not get back what you invest.

Invest in parts

A way around this problem is to drip feed money into the markets over time – this involves regularly investing smaller sums from a larger pot of money already in your Account. We often recommend that 12 months is an ideal time to phase a lump sum into the market. Although individual circumstances will differ so you need to look at what time period is best for you.

By drip feeding, contributions invested in months when markets are higher will buy fewer units, and those invested when markets are lower will buy more units. Overall, the purchase price of units will be averaged out over a longer period. We call this ‘Pound Cost Averaging’ and this can be particularly useful in periods of higher volatility.

Why phase into the market rather than invest a lump sum?

Drip feeding money into the market can be a good way to invest long term and removes the issue of trying to second guess market movements.

Rather than investing once with a lump sum, phasing your investment in this way could help to shelter you against market volatility. And in particular, the risk of prices dropping soon after your initial investment. This could put you in a better position for future price rises.

In falling markets, you’ll benefit as unit prices are cheaper – meaning you’ll be able to buy more units. But this would likely mean that the original amount you’d invested would be worth less at the time because prices would’ve fallen.

In rising markets you’ll be worse off as unit prices are more expensive – this time meaning you’ll be buying less units. But this also means that the original amount you’d invested would likely have gone up in value because prices would’ve risen.

Remember that all investments should normally be held for a minimum of 5 years. So we would hopefully expect values to increase over the longer term helping us to smooth out any market volatility though of course there are no guarantees.

Why now?

We’ve already seen some market recoveries but like many people I can’t be confident that we’ve seen rock bottom just yet. Invest too early and we could see markets continue to fall along with the value of your initial investment. But invest too late and you might miss the boat.

That’s why now could be a great time to consider drip feeding into the market.

Extra help available

If you find yourself second guessing your decisions and might benefit from a helping hand, our financial advisers could help.

Each of our clients have different goals and circumstances. The information in this article is not personal advice, it is only a guide. An adviser will get into the details of your goals to give you a personalised plan.

A good next step is to talk to our advisory helpdesk. They’ll help you understand:

• What help and support we offer
• Why our expert financial advisers could be the answer if you need more help
• How financial advice works, including the benefits and costs

If you decide advice is right for you, we’ll put you in touch with an adviser within two working days. No personal advice will be given during the initial call.

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