That endless wait for a goldilocks moment is something which steers many people away from investing. The fear that the stock market is either soaring too close to the sun, or sinking to plumb new depths, deters many investors – whether they are new to the game or an old hand.
And so they wait for that magical goldilocks moment, when it’s not too hot and not too cold. They are looking for a time when you can safely evaluate a fund or share on its merits and not on whether the Market is about to bash it indiscriminately.
The problem is those moments are rare and it’s rarer still that we spot them at the time. We only see them in the rose-tinted gaze of hindsight, by which point things are either too hot or too cold again.
So what can you do to overcome this as a fearful investor?
One method is drip-feeding your money in. Rather than putting in a sizeable sum all in one go, you steadily feed it in over time. This lacks the thrill of putting a big chunk of money into a fund or some shares, but does carry the rather helpful advantage of spreading out your investment, so that your hard-earned pot is less likely to be whacked by a sudden market slump.
Of course, if the market leaps then you will see a lower return than if you’d gone all in, but if your plan is to build your wealth over time with the minimum amount of hassle, then slow and steady investing pays off.
There are, of course, investors who don’t buy into the buy and hold approach and do try and time the market – attempting to ride the ups and dodge the worst of the downs. This investment method carries much higher risks though, as you could experience returns below the market benchmark if your timing is even slightly out.
Another trick to sooth the fearful investor’s nerves is to target dividends and reinvest them. Over time this has a remarkable power to boost investments. And you don’t have to have a 115-year long investing horizon to reap the rewards of dividend reinvestment
The final tip for fearful investors is the hardest one to stomach.
It is to accept you are likely to be down at times and that horrible feeling when you invest and find yourself 10 per cent in the hole a month later is just part of investing being a long-term game.
That doesn’t mean you should blindly keep playing a losing hand though. Regular reviews of your route to market and investment risk tolerance should be carried out to make sure that you feel comfortable with your investment strategy. Keeping a close watch on your investment horizons will help to maintain the longer term strategy.
There will be plenty of investors suffering some of that pain right now, as markets managed to throw a wobbler just as late ISA money was being invested in March.
One of the most important things to remember is this;
The key to a successful investment is “time in” the market, not “timing” the market.
If you would like to review your own personal circumstances with one of our advisers please contact us to arrange an appointment.