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A volatile start to 2016; is now a good time to invest?

So what if you have money that you want to invest now? The outlook for cash savers in the UK looks bleak for 2016, with no prospect of significant rate rises. For many people holding cash in accounts which pays a very low rate of interest is not an option. This is because very low interest rates often don't keep up with inflation (the rising cost of living) and savings can depreciate in value in ‘real terms’. This means, even when there is stock market volatility, there is still a need for many people to invest in equities rather than hold all their money in cash savings. The question is, whether to invest now when there is so much volatility, or to wait for the financial storm to pass?
When it comes to investing, we often see more instinctive behaviour than we do methodical thought. When there is a ‘bull market’, when prices are rising or expected to rise, we see a rush to invest. When it turns and we enter a ‘bear market’, then investors react with fear and pull out, often at the worst possible time and making personal financial losses.
When you invest money you should do so with a long-term view of at least five to ten years. If you invest into a portfolio of funds which suits your attitude to risk, the hope is that the duration of time will smooth out the peaks and troughs in the stock market to provide you with the predicted rate of return when your investment matures.
Predictably, what happens is that investors become un-nerved when there are sharp rises and falls in stock markets, like we are seeing now at the start of 2016. Even though it is a good time to invest when prices are low in theory, it can take courage in your convictions to buy when everyone else is selling. 
There is an alternative way to invest if you are fearful of investing large sums when the markets spike at a high or low. Pound Cost Averaging is a technique that can reduce the exposure to falling markets that you may get when investing a lump sum. Instead, by investing at regular intervals, share purchases are spread across a range of market levels, making it less likely that all your shares are purchased when prices are high or low i.e. at the top or bottom of the market.
Many people choose to do this by drip-feeding a regular sum into their investment portfolio on a monthly basis. You can use the technique of Pound Cost Averaging across many different investment vehicles, so you can choose to invest into your ISA using this method. 
The key to good investing practice is to focus on your investment goals and your tolerance to taking investment risk, then build an investment portfolio to suit this. It is never a good idea to try and time when best to invest into the stock market; it is the fund managers job to anticipate risks and periods of volatility and adjusted their holdings accordingly.
To find out more about investing, or to review your current investments or pension holdings, please get in touch, we’d love to help.   

Date issued: 15.01.16

Please remember any views or facts expressed above are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice. None of the information should be regarded as advice. Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments and the income from them may fall as well as rise and is not guaranteed. Investors may not get back the original amount invested. Any tax treatment is dependent upon individual client circumstances and may be subject to change.

Sanlam is a trading name of Sanlam Wealth Planning UK Limited (Reg. in England 3879955) and English Mutual Limited (Reg. in England 6685913). English Mutual Limited is an appointed representative of Sanlam Wealth Planning UK Limited which is authorised and regulated by the Financial Conduct Authority.

Registered Office: St. Bartholomew’s House, Lewins Mead, Bristol, BS1 2NH.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.