Two years ago, I was talking to a friend; the conversation went along the lines of, “2016 was good, but markets are going to fall so I am going to take my money out of the market and hold it in cash”. My friend then went on to explain that once the markets had reached the bottom, he would re-invest his money. I asked the question I always ask in these cases; what is the money for? He explained that the money was in a pension fund which he didn’t need and was planning to leave to his children.

To give you a little more background my friend is in his early sixties, in good health and is likely to live 20 plus years. The point being he doesn’t need the money; his goal was about being able to pass it on to his children and therefore short-term market movements are irrelevant.

I tried to explain the importance of his goal and how his focus should be on that and not on what the markets might or might not do. However, he was so convinced the markets would crash that he moved the money to cash. He missed the rise in markets in 2017, missed the drop-in markets in 2018 and is now sitting waiting and wondering when he should re-invest. Unfortunately, there is nothing that I can say that will help him, but it begs the question is there a ‘best’ time to invest?!

The art of investing

How we approach investing is dependent on our goals. If I have a tax bill to pay in 6 months, I am more likely to hold that money in cash. The reason is simple; I know how much I need to pay, and I cannot risk not having enough money to pay that bill.

If my goal is to save for my retirement which might be 40 years away, then how I invest my money is going to be very different.

Investing in stock markets can be rewarding but over the short-term values can rise and fall. We can view a fall in asset values as a loss when the reality is that this is just volatility, it only becomes a loss if we decide to sell the asset at the lower value.

So, when is the best time to invest in the stock market? If we could easily pick the best day to invest then everyone would do it. If, however investors are taking a five to ten-year view, then the more chance there is that they will make money.

Research by Fidelity showed that over 10 years, 96% of the time investors will have made money, even over one year there is a 78% chance. (This is over the period 30 November 2008 and 30 November 2018.)

Further data shows that over 15 years, this rises to 100%. Of course, nothing is guaranteed but it highlights that investing for the long term should deliver positive results. But investors must understand their goals before deciding on investing, once we know that then where we invest and the timing of that is more often irrelevant.

When the markets feel uncomfortable

In previous blogs I have talked about how nice it is to see our money go up. In fact, we are more likely to ignore our investments because we know they are going up. It makes us feel good. But the reverse is also true when markets go down; we start to feel less comfortable and focus too much on the investments we hold. As markets go down, we then start to question our decisions. In fact, sometimes we forget why we have invested the money in the first place.

This is when we can make mistakes; we can sell and therefore create an actual loss, and we can re-invest into something that we think is better, when the reality is often the opposite. One of the worst things we can do is wait without end in cash for the markets to get better because no-one knows when that will happen.

Once we sell investments then we are changing our long-term plans, which can have a significant impact. Stock market volatility tends to be short lived. In most cases when markets go down within a year they rise again and may return positive performance. It can take longer for investments to turn positive (2001 as an example) but evidence shows that investors are probably better doing nothing when markets are volatile.

We have used these examples before; by being fully invested in the FTSE All Share Index from 30 November 2003 to 30 November 2018 it would have provided an annualised return of 7.7%. Missing the 10 best days would have given a return of 3.4% p.a. and missing 40 days -3.1% p.a.


We know over the long term in most cases investors, should see positive returns. We do know however, even after this research that there is no perfect time to invest. It is also worth adding to the mix that it is impossible to guess what the markets will do. If an investor put all their money at the height of Japan’s expansion in the eighties into this market, they are likely to have lost money.

If someone buys a single share, then this brings significant volatility and concentration risk. One way to counter this is diversification. This is about slow and steady investing, spreading investments across different asset classes and regions. The argument being that the US might return 20% and Europe 3% in one year, but if we put everything in the US and they have a bad year the reverse might happen. Diversification simply means spreading that risk and amalgamating the returns over time; these should therefore be steadier and less reliant on outside bets.

But the mindset has to be right. Investors cannot look at a diversified portfolio and compare it to one index such as the FTSE 100 because they are not like for like.


Coming back to my chat with my friend. Fundamentally everything starts with the goals. What are we aiming to do with our money? This determines what we do next. I am the first to admit that investing when markets have risen quickly is tricky because I think it must be due to drop but what happens if they don’t? But if I turn it around and say I am investing for the next ten years it doesn’t really matter when I invest.

All studies show that the longer we hold our investment the more likely we are to make money. It also shows that if we try to ‘time the market’ then we are actually more likely to miss the best days. And finally, volatility can be unnerving, but it all comes back to the plan. If we act on our fears regarding market movements, we can fundamentally alter the outcome for our investments, which is unlikely to bring the desired results.

Note: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.