Some people may think it’s a worrying time to be an investor. The coronavirus outbreak has had an impact on markets, and although they have bounced back a little from what we all hope was the bottom, they remain volatile.
The effects have been felt on Stocks and Shares ISAs, which have become the core of many investors’ portfolios. They are a simple way to invest for your long-term future, free of UK income and capital gains tax.
However, with a new tax year here, despite the recent falls, at Continuum we believe it is probably time to think about investing.
Why invest now?
Would be investors ask the same question each year – should they use their allowance early, wait until the end of the tax year, or spread it throughout the year?
There are three very good reasons for looking at investing now. The first is that the markets have fallen, and stocks are starting to look more affordable.
The second is the opportunity presented by the new tax year. Remember, each tax year, your allowances reset, and you can invest up to £20,000 in an ISA for the 2020/21 tax year now.
The third is that investing earlier gives you a better chance of reaching your goals sooner. The longer your money is invested, the more time it has to grow. In simple terms, investing now could give you a head start on your ISA. Instead of waiting for markets to improve, it could give you an extra year’s growth on your investments, compared with a more cautious approach.
What about the risks?
Of course, there are risks with any investment, and in the current climate, those risks may be greater than usual. Nobody knows how long the current coronavirus crisis will last, how long before the world can get back to work, or how deep the damage will be to the economy when it does.
If the crisis is prolonged, making an early investment might not seem the best solution for growing your wealth.
There is also the likelihood that when we emerge from the crisis it will be into a very different world. Some sectors, such as traditional retail may never fully recover. Others, such as online services which offer home delivery already seem to be thriving and could continue to do so.
At Continuum, we want to help you deal with the risks, and identify where the opportunities may lie.
An investment strategy designed for you
Attempting to buy at the bottom of a market sounds fine in theory, but rarely works in practice. Remember, shares that fall can fall further still. Instead, you need a considered investment strategy, tailored around your current resources and your future plans. It will include the markets and sectors that are right for you, the shared and managed funds to consider – and the most cost-effective ways to acquire them.
In most cases, it will be for the long term. Investing for a minimum of five years and preferably much longer can offset the ups and downs even when they are as deep as the current falls and let the underlying growth of the market work for you.
It will be diversified. Having a good spread of investments is vital – when one market dips, another asset class may be rising, hopefully covering your losses.
Looking at your investment strategy now should let you seize a head start on the year, and let you take advantage of the technique of pound cost averaging.
This can be a safer way to invest when markets have fallen. With it you invest a small amount in your chosen funds or sectors each month.
When the market falls, as it has now, your monthly investment buys a large number of shares. When it goes up, their value increases. You then buy less – but the value remains the same.
Including pound cost averaging in your investment strategy means turning a downturn into a buying opportunity that can increase wealth, not risks.
In the current climate, getting professional help with your investments is more important than ever. At Continuum, we can give you individual support from an adviser who will work to help you plan the style of investment you need – and help you put those plans into action.
To find out more, simply call us.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
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