The value of investments and the income they produce can fall as well as rise.
Investing consistently well is a tricky business and we all aspire to do this but with varying degrees of success.
Knowing when to invest can have material consequences on how your investment will perform, even for longer term Investments.
The analogy I use is hitting a cricket ball. If you hit a cover drive but you don’t time it is unlikely to go for four runs.
Consider you are 50ish years of age and want to retire at 60 years of age. You are aware that we are currently in a volatile and uncertain economic backdrop. You have cash in the bank which is losing money after inflation. However, you are worried that there is a chance that markets will ‘fall out of bed’ at some point in the next few years, perhaps just before you retire. But, this is your last chance to invest into a pension. What do you do??
Here 6 key things you can do to help you to reduce the probability of making a bad investment.
1/ Use a good financial adviser
A good financial adviser will be able to tell you what to invest in, when to invest, when to realise profits and of course when to sit on cash. This is the role of a financial adviser / wealth manager.
2/ Be quick on your feet
This essentially means that your money should be liquid enough for you to disinvest it should you need to. If you have a short investment horizon or 10 years or less it is important to be able to disinvest your money quickly. However, if you have a longer term investment horizon then you may be better equipped & perhaps have more of a ‘capacity for loss’, enabling you to ride out market downturns.
3/ Know your risk
Knowing your risk is one of the most important prerequisites to investing well.
4/ Try to invest in down cycles
Investing in a down cycle is not always possible, but, by ‘pound cost averaging’, i.e. dripping your money into the markets every month over a year for example you will be able to attain an average price for the notional invested.
5/Don’t be afraid to sit on cash for periods of time until you are ready to re-invest.
As an example, if you disinvested your money in 2007/8, sat on cash and reinvested in 2011 you would have seen substantial growth.
6/ Realise (crystallise) profits at least once a year.
For example, if you have your money in a pure passive index tracker Fund or Funds, you may not be realising any of your profits. Ultimately what we want to achieve are ‘real money returns’ not paper returns. This means crystallising your profits at least once a year. Most good active fund managers will do this for you.