Is now a good time to invest in the stock market?

Inflation is like a slow and silent thief that steals the value of your money over time – it’s every investor’s nemesis. The longer you wait to invest, the more your money is eroded by the rising cost of goods and services.

Let’s say you have £10,000 sitting in a savings account earning 1% interest a year. If inflation is at 2% (the Bank of England’s target), the real return on your money is negative – your purchasing power is decreasing. More simply, you’ll be able to buy far less with your money a year down the line.

To help combat inflation, people invest. Investing your money gives you the opportunity to beat rising prices and grow your wealth.

For example, historically the average rate of inflation between 1989 and 2022 has been 2.5%. The UK’s biggest companies have grown a staggering 1,377% with dividends reinvested – an average total return of 7.8% a year. Please remember, past performance isn’t a guide to the future.

The power of time – your most powerful investing tool?

Interest – it’s often said that those that understand it, earn it and those that don’t, pay it.

The longer you leave your investments to grow, the more you can take advantage of ‘the eighth wonder of the world’ – compounding.

Compound investing is when you reinvest any returns you make on your investments. Rather than taking the income, any growth could multiply – you’ll essentially earn more.

It’s a snowball effect that allows small amounts of money to potentially grow into large amounts over time. It might sound complex – but it doesn’t have to be.

Compounding works best when you do nothing and just leave your money invested. By regularly reinvesting, and letting any increases build upon themselves over the long term, the results could really pay off.

This article isn’t personal advice. If you’re not sure what’s right for you, please ask for financial advice. Investments and any income from them can rise and fall in value, so you could get back less than you invest.

How does compounding work?

Imagine you invest £1,000 into an ISA at the start of every year, and your investments grow by 5% per year. After one year, you'll earn £50. In the second year you'll get 5% of £2,052.50, so you'll earn £102.50, and your savings will be worth £2,152.50. Fast forward by 20 years and your savings are worth £34,719.25 compared with overall contributions of £20,000.00.

This is an example only. Actual returns will vary depending on the investments you choose. These calculations don’t take charges or taxes into account. The value of investments and any income they give you can go down as well as up in value, so you could get back less than invested.

It’s about time in the market, not trying to time it

Timing the market rarely beats time in the market – even the professionals don’t get it right every time.

But, bad timing is often better than nothing.

By trying to time the market, you run the risk of missing out on potential gains or even losing money. Here’s the cost of missing out on the ten best days in the market over 20 years.

Impact of missing the best 10 days in the UK stock market (2000-2022)

Past performance isn’t a guide to future returns. Source: Lipper IM, from 03/01/2000 to 30/12/2022. Figures based on £10,000 starting investment.

Looking for a place to invest your money?

If you’re looking to invest with risk in mind but not sure where to start, our new ready-made investments could help.

You can pick from any of our ready-made all-in-one funds depending on how much risk you want to take. And that’s it. You’ll then just need to check in on it from time to time, to make sure it’s still right for you.

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Start with just £100, or set up a Direct Debit to invest after launch from as little as £25 per month.

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HL’s ready-made investments are managed by our sister company Hargreaves Lansdown Fund Managers Ltd.