When stocks are rising, everyone wants in on the action. For example, a month ago, when the FTSE 100 was flying, I had several friends express interest in starting an investment portfolio. However, a month later, with global markets having fallen 10%, these same friends, have all of a sudden lost interest.
I can understand why this happens. When the market is rising, it feels good to be an investor. But when the market is plummeting, it doesn’t feel so good. No one likes doing something that doesn’t feel good.
Yet the thing is, if you want to be a really successful long-term investor, you have to think differently. You have to be able to go against the herd. Experienced investors understand that often, when everyone else is panicking because the stock market is falling, it can actually be a fantastic time to go for it. Just ask Warren Buffett, who advises investors to be “greedy when others are fearful.”
So is now a good time to invest your first £1,000?
More for your money
If you have been thinking about starting an investment portfolio this year, but haven’t got around to it yet, you’re in luck. Stocks are now considerably cheaper than they were a month ago.
In mid-January, the FTSE 100 was at an all-time high. It was within touching distance of 7,800 points. However, now, it’s back under 7,200 points.
This means that you can now get more for your money. £1,000 invested in the market today will buy you more stocks than it did a month ago.
For example, when I wrote the article ‘How to invest if you only have £1,000′ back on 7 January, one investment trust I earmarked was The City of London Investment Trust. This is a great one for beginners, as it holds a diversified portfolio of blue-chip stocks and is managed with a cautious approach. At the time, the trust was trading at 441p per share. So an investment of £1,000 would have bought you 226 units.
However now, that same investment trust is trading at 408p. That means, if you were to invest £1,000 today, you could pick up 245 units for the same price. That sounds like a good deal to me. Ultimately, picking up more units at a lower valuation means a higher chance of a profit over the long term.
Bigger dividends
Another benefit of investing now is that dividend yields are higher than they were a month ago. You see, there’s an inverse relationship between share prices and dividend yields. When shares prices fall, dividend yields rise.
Using The City of London Investment Trust as an example, on 7 January, its dividend yield was 3.8%. However, at today’s price, the yield is 4.1%. That means higher dividend payments for you.
So given that you can now buy more for your money than you could a month ago, and pick up higher dividend yields in the process, now does appear to be a good time to get started in the investment world.
Of course, the stock market could continue to fall further. For this reason, it could be sensible to invest your first £1,000 in several instalments over time.