Recent volatility in investment markets leaves many people sitting on the side lines and waiting for things to calm down. The alternative to investing is to hold savings in cash. This may seem sensible but the one factor against this objective is knowing when is everything more stable and when is it right to invest? Getting timings wrong could result in missing out on significant returns.
Another factor to consider when waiting for volatility to calm is the effect of inflation. Figures published in January 2019 saw the Bank of England’s base rate sits at 0.75% with inflation at 1.8%. Indeed, if we consider the average inflation rate for the 20 years between 1998 and 2018, this has stood at 2.8%. Putting this in monetary terms an item that cost £10 in 1998 would now cost £17.29, a price increase of 73%. Or in other words £1 in 1998 would only buy you only 57p worth of goods in 2018.
This simple fact highlights the need to consider longer term objectives as without some element of investment. The plans that people have for the future, be it buying a new car, a dream holiday or, ensuring a required level of income in retirement is obtained might not be achieved.
On this latter point, research by the Financial Conduct Authority estimated that there are around 50,000 non-advised customers in the UK wholly holding cash. Of this, they estimate over half may not achieve the income they require in retirement.
This highlights that making longer term plans needs to be looked at very carefully. Whether an experienced investor who likes to invest personally or somebody who has never invested but does have future goals, should think carefully about when and how to invest.