Timing the markets...is now the time?

Timing the market

Volatile markets may put you off from investing and knowing when to invest in stockmarkets can be a difficult task. But with cash returns at low levels and inflation on the rise, how can we help you manage market volatility?

Smoothing the ups and downs

One way of managing market volatility is by making regular investments so that the ups and downs of the market are spread across your investment rather than investing at one point and therefore at one price, which could turn out to be high over the medium to long-term.

In simple terms, if you buy at a high price, you will buy fewer units, whereas buying at a lower price will buy more units

Case study:

Let’s take an example, where two clients want to use their annual ISA allowance (£20,000 for tax year 2017/18).

·         Steve makes a lump sum investment of £18,000 which in April would buy 4,500 units.

·         Penny decides to make a monthly investment of £1,500 – with a total investment of £18,000 over the year.

As the share price changes over the year, here’s how Penny’s investment could build up units in her ISA:

Month

Share price

Investment

Units purchased

April

£4

£1,500

375

May

£3

£1,500

500

June

£4

£1,500

375

July

£3

£1,500

500

August

£2

£1,500

750

September

£3

£1,500

500

October

£5

£1,500

300

November

£4

£1,500

375

December

£2.50

£1,500

600

January

£2.50

£1,500

600

February

£4

£1,500

375

March

£3

£1,500

500

Total

£18,000

5,750 units

In this example, we have seen the share price vary widely over the year.

Investment

Units purchased

Market value at end of year

Loss on investment

Loss (£)

Steve’s lump sum investment - £18,000

4,500

£13,500

25%

£4,500

Penny’s monthly investment of £1,500

5,750

£17,250

4.17%

£750

Difference

1,250 units

£3,750

20.83%

£3,750

The figures shown in the above tables are for illustrative purposes only. The value of an investment can fall as well as rise, and you may get back less than you originally invested.

Whilst this example demonstrates how regular investing can help to manage market volatility when prices tend to fall, investing a lump sum would deliver greater returns if the share price grew over the year.

Investing a lump sum

If you do have a lump sum to invest, you could consider spreading the investment over several months to manage market volatility, but if you do wish to invest all at once, there are other ways to help to manage volatility:

·         Diversification – By investing in a fund or in multiple investments, you will spread the risk of share price volatility as there will be several different investments whose value will be influenced by different factors.

·         Investing for the medium to long term – Generally markets tend to outperform cash and other assets in the medium to long-term. So if you are willing and able to invest for at least five years, the impact of market volatility in the short term should be overcome.

·         Choosing investments to suit your attitude to risk – We have a wide range of funds available to suit different needs and attitude to risk, so that you can choose the level of risk you are willing and able to take with your investments.

 

Ask our Consultants to help you understand the investment choices available and also to select a fund which matches your attitude to risk and how to manage your investment strategy to reach your financial goals.


This article is for information only and is not to be taken as Financial Advice

CA1412  Exp 07/18


[ Date Posted: 19/07/2017 16:58:44 ]