There are two main ways to make money. The first way is to earn an income, either by working for yourself or for someone else. It is something that most of us do, but unless we are blessed with some particularly valuable skills and a good helping of luck you are unlikely to become as rich as you would like.
But there is another way to help build your fortune. If you invest, your wealth could potentially grow without further effort from you.
At Continuum we believe that investing is a very good idea for most people. But we seem to be in the middle of one of the most volatile periods for the stock market for some time, so should you really start investing now?
There may be a recession brewing. Interest rates are rising, economic activity is depressed and the value of many markets have fallen, and look set to continue to decline.
A cautious observer would believe that any investment made now could lose, rather than make money.
They might suggest that it is time to hold on to your cash, keeping it liquid until such time that the markets have hit bottom.
But even though economic times in general and markets in particular are undoubtedly troubled, there may be several reasons to think about investing now.
Time really is money. Thanks to the wonders of compound interest, the more time you have to grow your wealth, the more it could grow. In other words, the sooner you start getting your cash working for you, the better off you might be. Making an investment and leaving it to potentially grow for the long term is one of the few techniques that could demonstrate a consistent record of success.
You can’t time the market
Of course, the idea of simply making an investment and leaving it alone is very different from the popular misconception of what investing involves. Many people, including some investors dream of perfectly timing the bottom of the market and making a killing on the recovery. But it is very difficult to time the market, if not impossible. There may be some signs, such as increased trading volumes, or increased activity from fund managers, but no one can know what comes next for a market. The current falling – or bear – market could be over tomorrow, or it could last for another six months or longer.
Investment opportunities could all be cheaper in six months’ time. Or they could have hit new highs. There is simply no way of telling.
Timing the market is impossible. We would all be billionaires if it wasn’t.
Cash is a wasting asset
We might not be at the bottom of the market cycle. You could argue that on balance, it might be best to hold off to see if prices will fall some more.
But there is another reason to invest now, rather than later. Inflation.
If you keep your money in cash, at current rates of inflation, it might be worth 10% less by this time next year. Each £100 you have now will possibly buy just £90 worth of goods (at current prices) by next July.
If you invest your money, use it to buy something rather than keep it as cash, inflation will potentially not eat into the value of your assets. In fact, it could possibly work to build them.
So how should you invest now?
If you are already in the market then sitting through any downturn might be the most suitable strategy. If you are not in, you need to invest carefully in those stocks and other assets that are best positioned to weather the storm.
How you invest is also important. Rather than buy everything you can today, a process of regular investment, known as Pound Cost Averaging might be the most suitable to help preserve and grow value.
Advice from an independent expert might be the best place to start.
At Continuum, we will be very happy to provide it.
When investing your capital is at risk
The value of your investment and income from it can go down as well as up and you may not get back the full amount invested
Equity investments do not afford the same capital security as deposit accounts. When investing your capital is at risk.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Protection products or investment strategy, you should seek independent financial advice before embarking on any course of action.