Following the first shock of the pandemic breakout more than a year ago, investors experienced one of the most remarkable and fastest equity market recoveries of all time, with major equity indices like the S&P 500 and Eurostoxx50 trading now at record highs. At these levels, many investors out there are skeptical about investing in equities, despite history showing that market all-time highs do not necessarily indicate an imminent correction.
Market timing
Investors are always looking for the best time to enter the market. But "timing the market"—or entering at the lowest point of a market downturn—is something that even professional investors are not able to do. Even if you succeed in your attempt to time the market, the benefit fades away the longer your investment horizon is. Studies show that by being continuously invested you make sure that you don’t miss the market’s best days, which makes a positive impact in your portfolio's performance over time.
Invest a lump sum of money all at once or spread it out in instalments?
Supporters of investing in instalments over time rather than all at once argue that, by doing so, you are less likely to put the entire amount into the market right before a downturn. By buying units at different points in time, you may minimize the effect when the time of the next market plunge comes. While the argument sounds fair, research shows that investing the entire lump sum results in better returns, most of the time. However, if your concern is preservation of assets, then investing in instalments might be the better approach for you.
Have a Plan and Stick to it
The key is to determine how much time you have until you want to use your savings, so that you have enough time in the market to achieve your goals. By being invested in a diversified portfolio that spreads out your risk, you can start reaping the rewards of compounding and achieve even higher growth rates on your initial capital. With a smart investment plan and the discipline to keep to it, you don’t need to worry about short term market movements. As long as you’re willing to stick to your plan, sometimes for slightly longer than you initially anticipated, history has shown again and again that you’ll be rewarded in the end.