Markets are volatile. Brexit, Donald Trump, the state of the Chinese economy – all of these factors and more can create instability for shares.
With all the political machinations driving shares up and down, investors may rightly be asking when is a good time to invest – or wondering whether they should just sit and wait.
Evidence shows that investing in the stock market delivers better long-term returns than other assets, such as savings deposits in a bank or building society.
At the end of year one, had you invested your full £24,000 in a lump sum you would have £21,600 and at the end of year two that would have risen back up to £23,760, still a loss over the two years of £240.
If instead you invested £1,000 per month, at the end of year one you would have £11,339 having invested £12,000. By the end of year two you would have £25,114 having invested your full £24,000. You would have a profit of over £1,000 – even though over the two years the market is flat.
This is because you were able to buy more for your £1,000 when the market was falling, which then benefited as the market rose again. This, of course, ignores fees, charges and dividends, but you get the picture.
Many retail investment providers offer discounted dealing rates for regular savings precisely to encourage people to opt for little and often. Another benefit of investing little and often is the habit it creates.
In a world where many things we now consume are on monthly payment schemes, from music and film subscriptions to mobile phones, creating the same process for investing helps ensure it is part of everyday behaviour and actually happens.
It removes the temptation to spend that money on something else, in which case you get no returns at all.
Finally, and as touched on already, re-investing dividend income can make a huge difference to your final investment outcome.
No less an authority than Albert Einstein described compound interest as the eighth wonder of the world. It is often thought of in terms of interest on cash savings, but it applies at least as much to dividends, or the income on investments.
Reinvesting those dividends mean they compound over time to accelerate any returns.
Personal investors, then, should not be unduly worried by short-term lurches on the stock market, nor should they fret about Brexit or other political events.
The message is simple: Invest for the long term, little and often. Reinvest the dividend income back into the pot and as Credit Suisse highlighted in their report, spread the risk across a range of shares.
If you stick to these principles, whatever the ups and downs of the market, it should keep you on the path to prosperity.
Popular Shares: Persimmon
Persimmon posted a record profit of £1.1billion this week, but that hasn’t generated entirely positive publicity for the housebuilder.
Government sources suggest they’re not happy with its approach, and may not renew its access to the Help to Buy scheme.
That seems unlikely, given Persimmon’s size. More likely the Government was trying to head off bad headlines about how it’s swelled the housebuilders’ coffers by using taxpayer funds to boost activity in the property market. (It has, by the way).
The criticisms of Persimmon are not entirely without merit. Its build quality isn’t as good as its peers, though it is improving.
Its leadership has been questionable, particularly last year over ex-chief executive Jeff Fairburn’s pay. Management needs to reset its reputation on this front.
While Help to Buy and low interest rates have helped to bolster profits, Brexit has dented confidence in the sector. Now house price growth is slowing, the future’s not looking as rosy as the past.