Be greedy when others are fearful
When to invest
BUY LOW AND SELL HIGH. This may sound like a simple strategy but the truth is it takes bravery to invest when all the news flow is negative, and markets have slumped leaving existing holdings nursing their wounds. Human nature leads the majority of us to walk away at times like these, never mind taking more on risk.
It is this very basic instinct that leads to the majority of investors buying equities when they are towards a high point and selling at a relative low level. Fear of losing more capital scares us away and forces us to realise losses rather than seize the opportunity.
Fears and talks of recession have seen markets decline significantly with the S&P 500 falling 25% since January this year. Markets move in cycles and inevitably they recover from their lows and most achieve new all time highs. With this in mind, when share prices are cheap we should be ignoring the negative news flow and grabbing this opportunity with both hands and deploying our cash reserves.
How to invest
Firstly utilise your tax efficient investment options. As well as benefitting from healthy growth on your portfolio you can also receive tax relief which is a positive return from the outset. Most of these solutions are pension related and requires locking your capital away until retirement, so the amount you are able to and want to part with will depend on your individual circumstances. For example you can start by maximising your third pillar pension and contributing 6,883 for 2022. As we are nearing the end of 2022 we suggest you contribute the maximum amount for this year as a one off lump sum and then set up a monthly ongoing contribution starting January 2023. This will make the amount more manageable and also allow you to invest in the market using unit cost averaging, helping you mitigate risk whilst maximising your returns.
In addition to your third pillar you can also buy back years within your second pillar pension. Ask your HR department or pension provider for a recent statement and on this document you will see the amount you are eligible to buy back. This is likely to be a more significant amount when compared to your third pillar. However, if you have accumulated cash reserves over the previous years this is a great opportunity to increase your future pension income and also receive tax relief on your contributions. You can also gradually buy back this amount each year rather than the full amount.
Once you have utilised your tax relief options you can then look at more flexible options which allow access to your capital should you need it. However, please do keep in mind that when investing it is best to have a minimum time frame of 5 years.
There are two different strategies that you may wish to consider when investing. many of our clients utilise them both as they compliment each other extremely well.
Lump Sum (Wealth Preservation)
If you have already accumulated capital you may wish to put this amount to work. Firstly find out what your risk appetite is and then construct a portfolio that is inline with your risk profile and investment values. If you are unfamiliar with investing we highly recommend you work with an advisor who can help construct your portfolio and more importantly help you manage it moving forward.
Regular Savings (Wealth Accumulation)
This is one of the most effective strategies available, particularly when you have a longer term objective to achieve such as your children’s education or further retirement provisions. The trick is to pay yourself first as soon as you get paid and then spend what is left, rather than aim to save what is left. By investing in a disciplined regular way, you eliminate the guess work and also benefit from unit cost averaging and compound interest. You also maintain this approach even when markets fall in value as you will start to accumulate units at a lower price and bring down your overall average unit price of your holdings. When markets recover as will your portfolio.
Take Action
Our trained team of advisors are on hand to help you construct and maintain your portfolio. If you wish to speak with us, book your complimentary meeting and we will guide you through every step of the way.
