Coronavirus has had a huge impact on the global economy. And while many people have seen the value of their investments drop, some are seeing this as an opportunity to buy while prices are lower. If you’re asking yourself ‘should I invest in the stock market?’, here are a few things to consider.
It’s about time, not timing
There’s a misconception that investing’s about trying to time the market. That you have to predict the future so you can buy when prices are low and sell when they’re high. The thing is, no-one can know for sure what the markets are going to do. And that’s especially true since the outbreak of coronavirus.
Rather than trying to time the market, it’s better to focus on time in the market. You’ll notice that most investments are described as a medium-to-long-term commitment. That means leaving your money in the same place for at least 5 years. Because the longer you invest, the greater your potential for making a profit.
Historically, markets tend to rise over time. There may be short-term fluctuations, even some losses along the way. But if you have an accessible emergency fund to cover any surprise costs or any periods where you’re unexpectedly not working, you'll be less likely to have to sell your investments during a downturn. This means you can give your investment time to recover from any losses.
Remember that past performance is no guarantee of future returns. Markets can go down as well as up and there’s always a risk you could get back less than you put in.
Making your money go further
Saving accounts are generally seen as the safest way to save. However, interest rates are currently at an all-time low. And when the rate of interest you earn is less than the rate of inflation, your money is able to buy less and less over time.
If you don’t need to access your money for 5 years or more, investing gives it greater potential for beating inflation than savings. Again, you need to bear in mind that investing comes with risk. Yet in return for a chosen degree of risk, you get the opportunity to make your money work harder.
Making the ride less bumpy
When you invest, the value of your investment will change in response to what’s happening in the markets. These short-term fluctuations are a normal part of investing.
One way to make the ride less bumpy is to diversify. This is when you place your money in a range of different investments, rather than just one. The idea is that losses to one investment could be offset by gains to another. It’s more commonly known as ‘not putting all your eggs in one basket’.
The good news is you don’t have to be an expert investor to diversify. You can do it by buying into a ready-made portfolio. Also known as multi-asset funds, these types of investments are designed to stay within your chosen level of risk.
Hussain Mehdi, macro and investment strategist at HSBC, explains how these types of funds can come into their own in times of turbulence. “They’re professionally managed by teams of investment experts who understand the global economy. This means they can adjust the degree of risk in a fund according to how they see events playing out.”
How a little could become a lot
Another way to help beat coronavirus volatility is to invest little and often. When you invest regularly, it averages out the price of the investments you buy. It also reduces the risk of investing a lump sum when prices are overly high and susceptible to a short-term fall.
Another great thing about regular investing is you’d be surprised at how the value of your investments can add up. And we’re not talking about investing large sums each month. With HSBC you can now get investment advice for as little as £50 per month, or you can choose your own investments from just £100. As you’d expect, eligibility criteria and some fees apply.
It feels good to act
Investing a little money in your long-term future could be a wonderful antidote to these turbulent times. Because during periods of instability, it can help to focus on things that are within your control.
What the coming months have in store is anyone’s guess. Yet when has the future ever been certain? We’d suggest that uncertainty is no reason to put your plans for the future on hold.