What happened in the markets last month?
August has a reputation for being one of the more volatile months of the year but this year it has been relatively quiet in comparison. Equity markets around the world continued to trend higher with developed and emerging markets rising by over 4% each whilst the performance of global bonds slowed. Meanwhile, US stocks climbed steadily – rising in all but one trading session – flirting with record levels before finally breaking into new all-time highs on 19th of August.
Whilst the stock market performance may not necessarily be a true reflection of the economy, the positive movement can be attributed to a few, ongoing factors:
- US jobless claims have fallen below the one million mark since the coronavirus pandemic;
- COVID-19 cases have been declining with progress towards positive vaccine data;
- Consumer optimism about the economic environment and;
- Economic stimulus from the US federal government and central banks around the world.
What does this all mean for you?
A common question that we’re being asked is: “With the market at its peak, is now a good time to invest?”
Now, whether you’re just starting out or have been investing for some time, the answer to this question is the same… Yes! It’s always a good time to invest! Of course, you don’t have to invest everything right away if you are new to this. You may prefer to split the amount that you have available into smaller amounts to dollar cost average if you want to reduce the emotional impact. But, what you really want to avoid is falling into the trap of trying to time the market.
A lot of people are afraid of buying in at the height of the market. They say, “I’d rather hold off and keep my money in cash until the market dips – because it’s going to dip. It can’t possibly get any higher and people are even saying that stocks will decline if Biden defeats Trump for presidency…so we should just wait.” This thought process could lead to huge, costly mistakes if it causes you to sit on the sidelines in cash and wait to invest.
The market will go down, but…
The problem is not necessarily with your logic. It’s reasonable to think that the market will take a downturn eventually because yes, it will go down. At some point we will likely see a correction – if not a bear market! The problem is that neither you, I, the financial media or your co-worker know when that next downturn will be and the mistake that you could be making is trying to get the timing of that dip correct.
In the meantime, you could potentially miss out on a huge growth opportunity. Already the S&P 500 has gained around 57% from mid-March to the end of August. If the next dip takes another year to arrive that means you miss out on 18-months worth of potential gains. No-one wants to buy high, right? But how long do you wait for the “low” to land?
There is no need to overcomplicate things. To invest effectively, you simply need to stick to a regular investment plan – through the highs and the lows, keep your emotions in check and take a buy and hold approach. Remember: It’s about time in the market. Not timing the market.
At Sarwa we are committed to helping people achieve their financial goals. If you’re wondering what all of this means for you and your money then reach out to one of our advisors who will be on-hand to answer all of your investment and financial planning questions.