Is now a good time to invest (more)?
Are you wondering whether now is a good time to start investing or to pay more into your investment solution?
Then we have some good news and some bad news for you. First the bad news: it’s impossible to know for sure whether now is a good or bad time. The good news, however, is that you don’t have to bother trying to determine the perfect time to invest based on stock market analyses or any news. In fact, trying to find the right time to invest (so-called “market timing”) is often counterproductive.
In this article we will show you why this is the case and how you should proceed instead.
Finding the right time to invest? – Not an easy thing to do!
Of course, it would be best to invest when prices are at their lowest and sell the investments when prices are at their highest. And in retrospect, the whole thing is child’s play: you look at the chart from the past and think, “that’s exactly when I should have paid in everything”, or “that’s exactly when I should have sold everything”. To reliably predict the development on the financial markets for the future or to recognise the highs and lows as such in the present, on the other hand, is practically impossible.
Let’s take a closer look at the development of the Swiss stock market in the Covid Spring 2020:
Although the number of Covid cases in China has exploded since the beginning of the year, share prices continue to rise and reach their highest level on 20 February 2020. There is not even a report on COVID-19 in the SRF Tagesschau on that day. The FOPH has ordered 20 people into quarantine that day to prevent the virus from reaching Switzerland. The situation seems to be under control and yet share prices are set to plunge by 26% next month – more sharply and more rapidly than ever before in history.
Development of the Swiss stock market (SPI) 2020 with highs and lows.
Then, on 23 March 2020, the prices reach their lowest point. In retrospect, this was the ideal time to enter the market. It is the beginning of the second week in which Switzerland is officially in a state of emergency; the largest recovery operation in history has just been carried out and the number of Covid cases is rising rapidly (+1000 new cases within 24 hours to a new total of 8,000 cases). There is nothing to suggest that the situation will recover any time soon and few would have chosen this day especially to make a deposit in the investment solution. In fact, however, share prices rose rapidly in the following days. However, economic activity in Switzerland (as in almost all other countries) remained restricted due to the Corona measures.
A little more than 7 months later, on 9 November 2020, Biontech and Pfizer published promising study results for the first time and the vaccine came within reach. By contrast, three quarters of the share prices had already recovered by this time. Anyone who had decided to invest on the basis of the good news on that day would have missed out on most of the upswing.
In summary, during the Covid crisis in 2020, it was practically impossible to recognise the highs and lows of share prices on the basis of news or the current economic situation and to (precisely) hit the right times to buy or sell investments. The example clearly illustrates that the financial markets often do not develop as one would expect.
Finding the “right” time to invest? – Not necessary at all!
Instead of constantly struggling with the question of the right time to invest, it is easier and better to invest at regular intervals and thus benefit from a cost average effect.
This can be illustrated again by the development of the Swiss stock market during the Covid crisis in 2020:
If we compare a regular, monthly investment (green dots in the graph) with a one-off investment of the entire sum in November 2020 after the vaccine announcement (red dot), it is clearly visible that by investing monthly, the shares were bought overall on average (green horizontal line) at a lower price and thus a higher return was achieved.
Development of the Swiss stock market (SPI) 2020 with comparison between regular, monthly investing and one-off investing.
If you invest the same sum each month, you also benefit from the fact that more shares are automatically bought when prices are low, such as at the end of March 2020, and fewer shares are bought when prices are expensive, such as at the end of November 2020. This effect, also known as «dollar cost averaging», automatically lowers the average purchase price.
5 final tips
- Don’t go crazy – to invest successfully, you don’t need to be constantly informed about everything!
- Start with a smaller amount and invest your desired amount in a staggered manner. Since all deposits and withdrawals are free of charge at findependent, this does not result in higher costs.
- The easiest way to do this is with a standing order. This way you don’t have to think about it and are not always confronted with the question of whether now is a good time.
- Similarly, it is best to make larger, planned payments in stages.
- Fluctuations on the financial markets are completely normal. So keep a cool head when things don’t go so well.
Note: At the moment, neither all pages nor the complete onboarding are available in English. However, we are working intensively to change this. Thank you for your understanding.