Is now a good time to invest in 2021?
You may be one of the many people who are looking at the stock-market and wondering if now is a good time to invest. Markets have closed at record highs more than 50 times this year.
Yes, so far this year there have only been two pull backs of +4% or greater, however, it is inevitable that there will be increased volatility in the future.
Before you decide
Before you make a decision it is worth considering three factors; your risk preference, your capacity to take a loss and your investment horizon.
Risk preference - this is the psychological feeling you have to loss. How upset your you feel if your money lost value. The stock-market is known for volatility. This is healthy. However, if an investment with your capital at risk will keep you awake at night then making an investment is not a good idea.
Capacity to take a loss - if any loss of capital would have a materially detrimental effect on your standard of living, this should be taken into account in assessing the risk you are able to take. More insight into your emergency money needs (short term expenses say 6 months), regular income surplus income, debt levels, known expenses and unknowns need to be factored in.
Time horizon - you should only be investing your money into the stock-market and/or capital at risk products if your are prepared to invest for a minimum period of 5 years, we recommend ideally 7 years. For example, monies allocated to retirement provision in 20 years should be treated and invested differently to monies required for a home renovation in 18 months time.
Investing if the market is at an all time high
The fact remains that over the longer term the stock market has rarely lost money.
Even when investing during previous highs and high levels of volatility you would have seen growth in your investment. Depending upon the selected time periods and date entered the stock-market your gains could be significant.
Our advice is to invest as soon as you can, invest as frequently as you can, always ensure that what you invest you can leave invested for your goal time frame and remain invested even if volatility heightens.
Some reasons to be positive
Business activity is expected to keep expanding providing support to corporate earnings.
Low interest rates will continue to encourage people to save and/ or spend. Equities/shares still present an attractive alternative to other asset classes.
Generous monetary policy
Signs that there are bigger increases in trade, movement of goods and spending .
Increased disposable income as a result of the ‘lock-downs’ and inability for consumers to spend.
Increased merger and acquisitions.
Reasons to be cautious
Accelerating inflation, especially in the US.
Global supply issues.
Resurgence in new Covid cases, vaccination efficacy and effectiveness against new strains.
Ending of government supports e.g. currently, the US Federal Reserve is supporting the purchase of financial assets to the tune of $ 120 bn per month and some European leaders believe a discussion should start around reducing ‘emergency’ stimulus measures.
China is the worlds second largest economy and any indication growth is slowing will impact markets..
Economic cycle growth has peaked?
The verdict
Focus on what you can control. While you can't control how markets perform, you can control where you're invested.
The financial strength of the product provider with whom you place your funds with should not be underestimated.
Volatility is part of the investment journey. Periods of volatility are a valuable reminder of the importance of diversification, i.e. spreading your money across different types of investments and geographical locations. Diversifying across different investments and countries can help reduce the amount of risk you take and potentially receive more consistent returns, with fewer ups and downs.
Stay disciplined.
Over the longer term holding 'riskier' assets is rewarded.
Making a better decision
Any significant event, wherever it happens in the world, can affect financial markets.
Never underestimate the importance of financial advice.
Before making any decision, we recommend you speak to us.
We are available to discuss your options, and we look forward to hearing from you.
telephone | 091441188 and/or email | office@nelsonlife.ie
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WARNING: Past performance is not a reliable guide to future performance. WARNING: The value of your investment may go down as well as up. WARNING: You may lose some or all of the money you invest. WARNING: These funds may be affected by changes in currency exchange rates. WARNING: If you invest into this product you will have access until you retire (Pension Products). WARNING: The above content does not constitute investment advice, as it does not take into account the investment objectives, knowledge and experience of financial situation of any particular person. Prospective investors are advised to make their own assessment of the information contained herein and to obtain professional advice suitable to their own individual circumstances. WARNING: The information contained in this document is based on our understanding of current tax legislation and the current Revenue Commissioners interpretation thereof and is subject to change including retrospectively without notice. This is intended as a general guide only and is not a substitute for professional tax, legal and investment advice.