Is It Safe To Buy Back Into The FTSE 100 Yet?

Investors could be forgiven for feeling punch drunk after the first 12 trading days following the start of 2016. As a fellow investor, I feel your pain. My portfolio, which was resilient due to its lack of exposure to oil, gas and commodities in general, has found the last few trading sessions tough going to say the least.

The bears are on the up

However, back to the FTSE 100, which has been sold off savagely this year, reaching lows not seen since November 2012. And with the heightened volatility come the perennial bears and doomsayers spreading the message cash is king.

Now, I don’t profess to know what’s lurking around the corner, but in my view the ‘known-knowns’ are:

  • Weak economic data and slowing growth in China.
  • A sub $30 oil price.
  • Fears of slower growth in America.

Now I could go on forever listing investors’ current fears, but I find that the chart below says it for me:

And despite the near 2% bounce today, I expect to see the volatility continue for some time yet as the bulls wrestle with the bears.

As an investor, a trader, or a candlestick maker, I wouldn’t want to try and time this market. Imagine the frustration of someone who capitulated yesterday only to see the market fly out of the blocks this morning! I’d be pig sick to say the least.

This Fool’s story

It’s at times like these that I look back at my investing story. Cast your mind back to 1999 – there was only one way that the market was heading according to the news – and that was up! I distinctly remember saying the same to the customer service assistant as I opened my Virgin Stocks and Shares ISA, which was invested in a fund that tracked the FTSE All share.

Of course history tells us that 1999 was one of the worst times to buy into the stock market with the FTSE 100 almost halving in value between the time that I bought my first investment to March 2003.

However, I more than doubled my money between 1999 and October 2006. Now if you look back at the market between those times, you’ll see that the index never doubled, not even from its nadir in March 2003. So how did I do it?

It’s actually straightforward with three main reasons:

  • Buying the dips – what I now know, having read several investment books, is that the market highs and lows tend to feature heavily in the news. I didn’t monitor my investment every day back then, but I did invest lump sums at key times when the market was most pessimistic.
  • Reinvesting Dividends – in my view, dividends are unsung heroes. Investors can either use them to supplement their income or reinvest buying more shares, which in turn qualify for more dividends – a rather virtuous circle!
  • Regular purchases = pound cost averaging. There’s no method at work, just a regular payment. Funds are invested on a specific day each month, sometimes you get a good price (2003 for example), sometimes less good (think 1999). The point is that emotions are taken out of the process, and you’re stopped from trying to time the market.

These days, of course, investors have information at their fingertips 24/7 should you be able to defy sleep. My view is simply this: keep calm and carry on investing.

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Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.