It’s been quite the year, hasn’t it? Between Brexit, global trade wars and growing fears for the climate, you could well be thinking that now’s not a good time to start investing your money. And yet the opposite may just be true.
Yes, things seem very up in the air right now. But when has the future ever been certain? We’d suggest uncertainty‘s no reason to put your plans for the future on hold.
The important thing to remember is that time is the finite resource in our lives. It’s the one thing we can’t create more of. The sooner we start investing, the sooner we put time to work for us. That’s why today could be a great day to start investing.
It’s about time, not timing
There’s a misconception that investing’s about trying to time the market. That you have to predict the future so you can buy when prices are low and sell when they’re high. The thing is, no-one can know for sure what the markets are going to do.
So rather than timing the market, a better strategy is to focus on time in the market. You’ll notice that most investments are described as a medium-to-long-term commitment. That means leaving your money in the same place for at least 5 years. Because the longer you invest, the greater your potential for making a profit.
Historically, markets tend to rise over time despite short-term fluctuations. There may be some losses along the way – even some bad years. But if you have a rainy-day fund to cover any emergencies, you'll be less likely to have to sell during a downturn. This means you can give your investments time to recover from any losses.
Remember that past performance is no guarantee of future returns. Markets can go down as well as up and there’s a risk you’ll get back less than you put in.
Making your money go further
Whatever the future looks like to you, having more money could help to make it rosier. Saving accounts are generally seen as the safest way to save. Yet the trouble with saving is the rate of interest you earn could be less than the rate of inflation. And when this happens, your money is able to buy less and less over time.
If you don’t need to access your money for 5 years or more, investing gives it greater potential for beating inflation than savings. Yes, investing comes with risk. Yet in return for a chosen degree of risk, you get the opportunity to make your money work harder.
Making the ride less bumpy
When you invest, the value of your investment can change in response to what’s happening in the markets. These short-term fluctuations are a normal part of investing. But if you have all your money in one investment, you’re going to be more sensitive to any losses.
One way to make the ride less bumpy is diversify. This is when you place your money in a range of different investments. The idea is that losses to one investment could be offset by gains to another. It’s more commonly known as 'not putting all your eggs in one basket'.
And you don’t have to be an expert investor to diversify. You can do it by buying into a ready-made portfolio – also known as a ‘multi-asset fund’. Multi-asset funds are designed to stay within your chosen level of risk. They tend to have higher ongoing charges because you’re basically paying a little more for experts to look after your investment for you.
Hussain Mehdi, macro and investment strategist at HSBC, explains how these types of funds can come into their own in times of turbulence. "They’re professionally managed by teams of investment experts who understand the global economy and can adjust the degree of risk in a fund according to how they see events playing out."
How a little could become a lot
Another way to beat volatility is to invest little and often. When you invest regularly, it averages out the price of the investments you buy. It also reduces the risk of investing a lump sum when prices are overly high and susceptible to a short-term fall.
The other great thing about regular investing is you’d be surprised at how the value of your investments can add up. And we’re not talking about investing large sums each month. With HSBC you can now start investing with advice for as little as £50 per month, or you can choose your own funds from just £100. As you’d expect, eligibility criteria and some fees apply.
It feels good to act
Investing a little money in your long-term future could be a wonderful antidote to these turbulent times. Because during periods of instability, it can help to focus on things that are within your control.
What the coming months have in store is anyone’s guess. Yet uncertainty’s not the only thing to think about. The other consideration is time. Explore your investing options today and you can put your time to good use.