Investing in shares is like any other investment, ideally, you want to buy in at a good price and hope the price will increase over time. There are many things to consider before buying in, firstly having the financial backing to buy and then deciding what to buy, where to buy and when to buy it. So, what do we need to consider and is now really a good time?
Consider the Market Performance
Although we can try to predict the share market no one can say exactly how it is going to perform on any given day or year. Over time though we can see even after a crash, markets generally recover within the following years which is why a long-term investment strategy is a key to successful investing. Given the volatility of the current market, you can’t guarantee your share won’t drop before they go back up as it’s impossible to tell how far the market may drop and where the bottom really is.
If we look at the Vanguard Index Chart, we can see the market rises and drops all the time, in fact daily! In situations where there has been a market drop or significant fall overtime the gradual trends shows it does pick up eventually and continues to grow. The measure of success often lies in two separate aspects, when you buy into an investment and when you pull out of an investment.
You could imagine if you invested in 2006 and experienced the market drop during the GFC between 2007 & 2009 you would have felt some concern and disappointment in your investment’s performance, however, in recent years the market has completely recovered and grown since that fall.
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Although 2006 wouldn’t have been the best time to initially buy into shares it would have been hard to predict markets would drop so suddenly. On the other hand, if you invested in 2009 and bought in at a lower share price you would be reasonably happy with the performance since. Even though there is a difference between those two start dates, both have seen growth since then.
Given we are currently experiencing a dip in the market now due to the Coronavirus pandemic which has resulted in Australian shares dropping by 37% at one point, once again we could say now might be the right time to buy shares. That is given you are able to purchase them for a good price and you are prepared to play the long-term investment game. You can read more about why investments like shares should be considered as a long term investment here.
Market performance isn’t the only thing you should consider in your decision of when to invest, there are some other aspects you should consider first:
What are your goals?
Your decision to invest in shares should be determined firstly by your goals and if your goals are long term. As a guideline, if you think you will need to withdraw your investment fund within the next couple of years, investing in shares probably isn’t the best investment choice for you as it doesn’t allow for you to ride out any market volatility. Goals, like building a retirement fund, building a fund to buy a business in 10 years or simply to gradually grow your savings over a long period of time, are good reasons to decide to invest.
What is your financial position?
You should also consider your financial position when deciding when to invest. Do you have large debts? Are you a good saver? Do you have savings outside of the money you are happy to invest? Depending on how your current situation, you may be better trying to reduce some debt before you invest. You may also be able to do both. This is a great topic to take to an adviser to understand your options and the longer-term impacts of making certain choices.
What is your risk tolerance?
Before deciding if investing in shares is the right decision for you now, you need to assess how comfortable you are with risk. Holding a piece of the market will be a bumpy ride, as we are seeing right now. Through periods of growth as we saw in recent years, it is easy to become complacent and expect to see positive numbers year after year. It can be very scary when the market does correct or drop, and you see former balances dwindle away. You need to be comfortable knowing that they are not losses until you sell and that the market, over time, tends to return positively. So consider that you did buy into shares in 2006 how you would have felt about their value significantly dropping 3 years later in the GFC. You can read more about your risk tolerance.
Can you invest consistently?
One of the best ways to ensure long term gains is to invest a bit regularly, say every month, and then commit to doing that consistently month in and month out irrespective of what the market is doing. Over time, those who do this and refrain from selling in downturns tend to outperform those who try to ‘time the market’ and pick the highs and lows.
“successful investing is about time in the market, not timing the market”
Our investment philosophy is built around long-term investment strategy and diversification of your investment portfolio in order to ride out market volatility. We focus on balancing returns with the risk taken for those returns. Based on this, it is almost always a good time to invest in the market, if that investment class suits your goals. You may also be interested in our article dipping your toes in the share market.
Speaking with a professional such as a Financial Adviser will help you determine if investing in shares now is the right decision for you. They will also be able to assist you in creating a diversified portfolio that aligns with your goals and values.
Speak to us today to find out if now is a good time for you.
What you need to know
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.