It’s usually a good time to invest when the markets are climbing back out of a hole. And the coronavirus appears to have combined with the slowing world economic growth we were experiencing anyway to bump share prices down.
And previous setbacks this century included the so-called tech wreck, which sent the markets plunging between 2000 and 2002, and the credit crunch and great recession, which caused stocks to plummet between 2007 and early 2009.
Bull markets have so far always followed
However, it’s what came after those events that I find to be interesting, and potentially life-changing for many. A new bull market for shares followed each bear market. Between 2003 and mid-2007, shares went broadly up. And there was an even longer bull market between 2009 until just recently.
Meanwhile, today’s falls are getting close to the proportions of those earlier bear markets. One thing that I feel certain about is that when the sell-off has finally run its course, the main market indices and individual share prices will handbrake-turn and reverse direction to start stair-stepping up again. It’s always happened before, and I reckon it’s likely to happen again.
There’s good reason to expect such a move. Generally, the macro-economy is cyclical and moves up and down in regular waves. And share prices on the stock market tend to be forward-looking. Indeed, the market is always trying to anticipate what will happen next, which is why moves in the market can seem puzzling sometimes.
For example, when the general economic news flow is at its worst, shares will often start climbing again. And when the news is full of sunshine, and investors have stopped worrying, the stock market will sometimes start to fall.
Simplicity and quality
Right now, we could see the market moving in either direction, I reckon. But we do know that the valuations of many companies have been reduced. The question is, how far will general corporate earnings fall? If profits slide a lot, the valuations of companies may have further to adjust down.
So I’d proceed with a programme of investing now by putting money into the market in stages. And a regular monthly contribution of, say, £500 into a Stocks and Shares ISA would be ideal (to me). The great thing about spreading the introduction of new money into the markets over time is that you won’t end up putting all your cash in at a high, or when the market has further to fall. And if the market goes lower, you’ll be getting more fund units or shares for your money.
With the markets in the state they are today, I wouldn’t try to be too clever by seeking out complicated investments with which to fill my ISA. I’d choose between low-cost index tracker funds, conservatively run managed funds, and the shares of great businesses with an emphasis on quality, such as those of Unilever,National Grid, Reckitt Benckiser, Sage, AstraZeneca and Britvic, to name just a few of the many options available.