Don’t wait for the next crash. Here are 3 reasons to invest NOW

As tempting as it is to stay in cash right now, there are a number of reasons to keep calm and carry on investing.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I wouldn’t blame you for being somewhat reluctant to invest at the current time. Toppy valuations following a seriously long bull market, combined with nerves surrounding just what the outcome of Brexit negotiations will be, give the impression that you’d simply be throwing your cash at equities at the wrong time. Keeping your powder dry also gives you the opportunity to pounce on carefully selected targets as and when the next general market panic arrives. 

There is such a thing as being overly cautious, however. Here are three reasons why continuing to buy at least some stock at the current time could still be a good idea.

1. Time in the market, not timing the market

While we can be fairly certain that markets will crash at some point in the future, no one knows where they’re going over the short term. That’s right, no one. The FTSE 100 at 8,000? It’s still possible.

This is why many experienced market participants are aware that staying invested and allowing your wealth to compound is preferable to attempting to jump in at the bottom (or leave at the top).

To be clear, you can invest at the height of the bull market and still make a lot of money. As US blogger Ben Carlson commented, someone who began investing with $6,000 in 1972 — and only invested at market peaks (e.g. December 1999, October 2007) — would still be a millionaire in 2013, assuming he/she never sold, held a low-cost fund that tracked the market and saved diligently in the run-up to pulling the trigger.

2. Benefit from pound cost averaging.

If we take it as read that no one knows the future for certain then it makes sense to gradually drip-feed money into the stock market rather than withhold it altogether.

This strategy — pound cost averaging — helps to smooth out the bumps in returns. Assuming you routinely invest the same amount, this simply means buying less of something when the price is high but more of the same thing when its value dips.

Another positive to investing on a regular basis is that it can be far cheaper. Whereas a single purchase on a random trading day usually involves paying the maximum commission that your stockbroker can charge, regular investing can be done for just £1 a month.

Costs add up over time. Minimise these as soon as possible in your career and reap the benefits at the finish line.

3. Receive (and reinvest) dividends

A final argument for continuing to invest at least some of your cash relates to dividends.

Let’s use Lloyds Bank as an example. The FTSE 100 behemoth is currently forecast to yield a stonking 5.6% in 2018. Compare that to the paltry 1.35% you’d receive keeping your cash stashed in the best instant access Cash ISA. Yes, you’re paid to take on more risk but, with Lloyds already trading at 8 times forecast earnings, it’s not unreasonable to suggest that a lot of this appears priced-in.

Moreover, the fact that the payout is expected to be covered twice by profits suggests that the likelihood of these being cut soon is slim. Even if they were, owning stock in 15-20 companies (or some income funds) should ensure that you’re protected if a few encounter problems.

A final bonus: reinvesting dividends when markets are struggling also means better returns once the latter inevitably recover.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »