Before I bought my first stock, I remember always asking myself: ‘is now a good time to buy?’ I used to look back in time at major stock indexes and think that, if I’d only bought at – enter any market low – I’d have this much by now. What I didn’t realise back then was that I was assuming I could time the market. That I’d be able to buy UK shares at just the ‘right’ time, when they were cheapest.
Timing the stock market is a hard thing to do. I’m not sure anyone can do it consistently. So what I do now is to make sure I spend as much time in the market as I can. To do this, I aim to buy and hold quality companies, and to pay a fair price for them.
Let’s take a look at how this might work, and if today really is a good time to buy UK shares.
Timing the lows
It’s easy to see why I’d want to buy right at the bottom of a stock market low. For example, during the Covid-induced stock market volatility in 2020, indexes like the FTSE 250 were in freefall. Now, if by some miracle I guessed the market low and bought the iShares FTSE 250 ETF right at that time, I’d be sitting on a 70% gain. That’s an impressive return over two years.
But thinking back to March 2020, it would’ve been extremely difficult to muster up the courage to invest my hard-earned money then. I say this because the FTSE 250 had just crashed over 40%, and know one knew when it was going to stop falling.
So, not only is market timing difficult psychologically, but it’s also almost impossible to know when the low point will be. Very easy in hindsight, though!
Time in the market
This brings me to my favoured method of investing: buy and hold. Or, in other words, maximising time in the market. I consider it a far easier investing plan as it removes the constant nagging question of whether this really is the best time to buy.
For me, I don’t really look to invest my money unless I have a long-term horizon. This is a minimum of five years for my personal circumstances. But really, I’m thinking much further out, to even 10 or 15 years.
Over a 10-year investing horizon, I’d have made a 72% return buying and holding the iShares FTSE 250 ETF. That’s a respectable return for simply making one purchase decision 10 years ago! Of course, over that time, the stock market has been volatile. This is a key risk to investing in the stock market.
It’s not just all about the FTSE 250. I also buy stocks, which offer the potential to outperform stock market indexes. Buying single stocks is certainly more risky, though, as anything can go wrong with the companies I might buy.
Whether I’m buying ETFs or stocks, I always look to buy and hold my investments. When buying stocks, I look for quality companies with high returns on capital and steady profit margins.
So, for a buy and hold investor like myself, I consider now as good a time as ever to buy UK shares. This way, I’m prioritising time in the market, over trying to time the market lows.