There’s a well-worn cliché trotted out by financial advisers when a potential client questions the wisdom of investing when the market is high – “it’s time in the market that counts, not market timing”. That’s bullshit and there are plenty of people who invested in the summer of 2007 or May 2008 who will tell you so. In the summer of 2007, the market was around the 6700 mark and in May 2008 it stood at 6400. Today the Footsie sits at 4500 or so, up from a recent low of 3800.
Put another way, given perfect timing you could have got almost twice as much for your money in December 2008 as in October 2007. OR, if you were unlucky enough to have invested your money in October 2007, you would now be sitting on a 30% loss. If that’s your retirement lump sum, you’d better have a stash of brown trousers available. Timing, my friends is (nearly) everything. A little luck helps too. Of course, no one can predict the top or bottom of any market. Still, it doesn’t take a genius to work out that both equities and property are relatively cheap, compared to their recent highs and that money on deposit will currently earn very little.
It pays to be a contrarian investor, buying an asset class when others are selling, and selling when others are buying. What’s noticeable, however, is that people generally buy when prices are rising, often near the top of the range, then hang on as prices fall unless they are forced to sell. Investing well takes patience. Investing very well means buying an asset class when it is cheap and selling when it’s expensive or a decent profit can be made, even running to cash when necessary. The one thing that can throw a spanner in the works is Capital Gains Tax, but it’s better to pay tax on a profit than to pay none on a loss. I’ll finish this section with an example that affects millions of people but is routinely done badly.
The much-maligned endowment policy is always written for a fixed term. many later policies are unit linked meaning that their value on any particular day is a direct reflection of the underlying assets on that day. Most people leave their policies to run and mature on an arbitrary date which happens to be the anniversary of the date the policy started. In fact, provided qualifying policy rules for tax purposes have been met, anyone whose policy is over 75% of the term should be making a judgment continually as to the best time to cash it in.