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I’m worried about [insert major geopolitical event]. Should I wait before investing?

It’s always easy to find a reason not to invest.

Because of the huge number of factors that can affect markets, combined with the never-ending cycle of major news stories, there’s always an event that could cause markets to fall. But despite this, the market’s risen in about 3 of every 4 years for as far back as we have reliable data.

To illustrate the point, I’ve put together a chart which shows that in every year since 1969 there’s been at least one reason to avoid investing. In the meantime, £1 invested in 1969 would have grown to £102 at the end of 2018 – an annualised gain of almost 10% a year:

50 years of reasons not to invest
Source: MSCI

 

What I thought was interesting when I was ploughing through digitised old newspaper articles was how the stories sound like they could’ve been written today. Investors were worried about the same things 50 years ago as they are today. And the stories would’ve been the same going back another 50 years.

The most common market fears are timeless: rising interest rates, higher inflation, wars, slowing economic growth, recessions, high market valuations, bubbles, household names collapsing.

They’ve always happened, and they always will happen. The things people are scared of don’t change, and that’s especially true for the stock market.

Yet despite all these fears, markets have carried on going higher. Long-term investors who managed to stay invested, despite the reasons not to, have done extremely well.

Yes, it can feel scary to invest amidst something which could have an impact on the stock market, but remember:

    • Scary headlines have been worrying investors since investing began, but it’s still more likely than not that markets will rise.
     
    • The market represents the collective knowledge of millions of well-informed market participants, whose full-time job it is to correctly price securities. They’re not always right, but the chances are that they’ve done a better job than you at figuring out what stocks are worth, so don’t try second guessing them by waiting to invest.
     
    • If the market does fall, you’re unlikely to be able to boost your returns by buying at a lower point. It sounds like it should be easy, but not even the full-time professionals can do it with any consistency. (See the ‘Active vs Passive’ section of the blog, as well as the later posts in this series)
     
    • In order to profit from your opinion on future events, you need to correctly predict: what’s going to happen, when it’s going to happen, its effect on the market, AND your opinion needs to be different from the consensus (otherwise it’s already priced in). If you can do all that, then you stand a chance of being able to correctly time the market. Unsurprisingly, most people can’t.
    • Any long-term investor should be aware that the market will always fall occasionally, and it’s this volatility which is the reason we’re paid to invest. We should all expect at least a couple of major selloffs during our investing careers. No risk, no return.
     
    • Counterintuitively, if you’re looking to invest regularly, any market dip should be welcomed, as it represents higher expected future returns for any new cash you’re investing.

So tune out the fearmongering, and just get invested.

The next post in the series looks at another reason people delay investing, answering the question of, “The market looks expensive. Should I wait for a selloff before investing?

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Past performance does not guarantee future performance and the value of investments can fall as well as rise. The information on this site is provided for information only and does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell, or otherwise transact in any investment including any products or services or an invitation, offer or solicitation to engage in any investment activity. Please refer to the full disclaimer on the disclaimer page.

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