Very volatile global stock markets…- …US bear market hardly started.
- Mountains of debt, vulnerable to sharply higher interest rates.
- A
clueless error prone nervous Federal Reserve (and central banks generally)
- Major war in Europe
- Confidence being sapped, and recessions almost certainly lying ahead (Europe is already in recession)
So we understand why many investors may be sitting on the sidelines at this moment. Rising interest rates, on the face of it, also provide attractive alternatives, but that only helps in the short-term, and in the long run you are losing money after factoring in inflation.
In contrast, it isn’t all doom and gloom for investors who have long time horizons, have adventurous attitudes to risk, or quite simply get FOMO (Fear Of Missing Out).
A common strategy, and one we have been successfully deploying with advisory clients of Dennehy Wealth since the 1980’s, is drip-feeding into the markets as a long-term strategy, with regular monthly investment. Ideally you need to do this from a bank account with a direct debit facility. [This contrasts with what we officially call Phased Investing, when we re-invest cash lump sums over, say, 12 months to sidestep short-term market volatility]
You don’t have to think about market timing, which is impossible to get right consistently. And as you aren’t constantly watching the markets it gives you more time to devote to other things – like life! After all, investing is a means to an end, not an end in itself.
No Timing Pressure, No Stress
One of the beauties of this automated strategy of regular investing is that, until it explodes upwards, little judgment is required. The longer the market goes sideways and down the better – you buy more and more, cheaper and cheaper, increasing your profit potential.
For Whom Does This Work?
The strategy is ideal for:
- Anyone with large sums on deposit but attracted to stock market potential IF they can avoid putting their capital at undue risk in the short-term.
- Anyone with regular surplus income from month to month.
- Patient savers or investors with long-term investment horizons (10 years+).
- Similarly, parents or grandparents investing for a child.
Ideal For Young People And ISA Investors
This is a perfect strategy for young people starting to invest, and it really isn’t too difficult.
Good savings ideas must be simple, effective, practical and flexible. This investment approach is all of those things. Plus, it is also a great way for young people to learn about investing.
With the minimum investment on many platforms just £20 per month, regular saving has never been more accessible for young people.
Most ISA investors wait until towards the end of the tax year to make a lump sum investment. Often this is in a rush, which doesn’t make for rational decision-making on fund choices. It makes much more sense for ISA investors to make a long-term commitment via monthly savings. You don’t need to worry about the immediate market timing, nor the ups and downs over short periods once you have started investing.
Which Investments?
You want to buy into a fund which falls into one or more of these categories:
- Cheap (Japan and UK Value funds)
- Beaten up (UK small companies)
- Very unpopular or widely detested (China)
- Supported by a long-term theme or need (India/Global Emerging Markets/Commodities/Artificial Intelligence)
Here are a few ideas:
On the other hand, you also have our range of Dynamic Portfolios that you can use as your chosen long-term investment strategy. But you would need to review these every 6 months, whereas the above cherry-picking (not what we normally recommend for lump sum investors) works with this monthly investing.
ACTION FOR INVESTORS
- Sensible investing isn’t a get-rich-quick scheme...
- ...it’s underpinned by process and discipline.
- Over time, dripping into the markets is a sensible disciplined strategy for many savers/investors...
- ...providing you are patient.