This is a particularly stark example of the principle at work, but the same effect can be seen over different markets in different timelines. Getting the inflexion point right is largely a matter of luck rather than design.
In the meantime, holding on to your cash in the hope of investing at the optimum moment means you could potentially miss out on investment growth. An extended rise over the last few years does not mean you can rely on it continuing, but nor does it make a fall inevitable. Past performance should not be seen as a guide to future performance and not be relied on as such.
Overall, when it comes to missing out on investment growth timing is less of an issue than not being invested at all. The timing you should consider is the time that’s right for you. This means considering making use of your spare capital when you have it.
You need to be confident that you won’t need the money for the long term – generally speaking, at least five years. You also need to be prepared for the risks that investment brings - markets can go down as well as up and you may not get back as much as you invested.
Your financial planning needs
Investing needs to be seen as part of your overall financial planning and not as a short cut to the potential for higher returns. Make decisions based on your own financial planning needs rather than a misplaced fear of or confidence in the market.
At Coutts, we are long-term investors and we believe markets are driven by underlying fundamentals. Our investment decisions are based on fundamental company and economic data that will influence markets, and we have the patience for our informed decisions to bear fruit.
We believe that the same principles hold true for individuals. Invest when the time is right for you and have the patience to give your investment time to mature. This will give you the best chance of making investment work for you.
If you would like to know more about investing with Coutts, please speak to your private banker.