‘Is now a good time to invest?’ would have to be the single most asked investment-related question in the world. If I had a tenner every time I heard that question I would have retired long ago. At this time of year, as ISA deadline day approaches, I hear the question even more frequently. Everyone wants to know whether now is a good time to transfer cash out of savings and invest it within a stocks & shares ISA.
Unfortunately, that question is very hard to answer. Nobody knows what global stock markets are going to do in the short term. Having said that, there definitely are reasons why now could be a good time to invest. Here are four.
1. Stocks are down
As a write, the FTSE 100 index stands at 6,950 points. That’s a fall of over 10% since mid-January. In other words, stocks are 10% cheaper now. That means you can buy more stocks for your money and that has to be a good thing.
2. Markets are on edge
Another reason now could be a great time to invest in a stocks & shares ISA is that markets are a little on edge right now. One thing I’ve learnt about investing over the years is that when markets are like this, it can be a great time to buy from a long-term investing perspective. In contrast, if investing feels easy and fun, then it’s probably not the best time to be buying shares. It usually means a stock market correction is on the horizon.
One of the keys to investing success is buying stocks when value is on offer. And you’re much more likely to find value during a correction than you are during a strong bull run. As Warren Buffett says, if you want to get rich “be greedy when others are fearful.”
3. UK stocks are neglected
Relative to US shares, UK stocks look quite cheap right now. According to top portfolio manager Neil Woodford, few international investors are interested in UK stocks at present as there’s a consensual view that Britain is a “basket case.” This has pushed valuations down to attractive levels. For example, Lloyds Banking Group trades on a forward-looking P/E of just 8.4. So now could be a good entry point for those with a long-term investment horizon.
4. Poor cash returns
Last, as I wrote here recently, cash is a very poor investment over the long term. If you want to build up your wealth and perhaps even become an ISA millionaire, a stocks & shares ISA should definitely be considered.
The best strategy
Of course, as I said earlier, no one knows how global markets will perform in the short term. With talk of higher interest rates and uncertainty over trade wars, shares could continue to fall this year. A further 5%-10% drop wouldn’t surprise me.
As a result, the best strategy, in my opinion, is to ‘average in’ to the stock market over a period of time. Instead of investing a lump sum at once, divide your capital up and invest a little on a regular basis. If markets rise from here, you’ll have done well to invest at the lower prices. If markets fall, you’ll be able to buy more stocks at lower prices. Win-win.
