Last week, the FTSE 100 lost 175 points, or 3.3%, in a very up-and-down week. Has the market reached the bottom? Or will it crash further, below 5,000 points? Is it time to start investing in the FTSE 100 today?
Those questions have been foremost in investors’ minds — well, at least those not concentrating more on staying well and getting their food supplies.
I’ve just emerged from self-isolation after exhibiting virus symptoms (now clear, thankfully), and I’ve been pleasantly surprised at how people are coping round here. The shop shelves are depleted, certainly, but people seem to be mostly acting responsibly and only buying what they need.
Buy the FTSE 100?
Sure, there are some people snapping up and hoarding as much stuff as they can get their hands on. I think it’s a mix of genuine fear and greed, and I’m seeing it in relation to investment decisions too. People have dumped their shares, and they’re worrying on a daily basis whether today’s the day to buy back in.
But it’s those excessive reactions that make things worse in both cases. Apparently, around £2bn of extra cash has been spent on groceries in the past few weeks. And the FTSE 100 has lost something like £150bn since the crisis started (it’s hard to tell exactly, as it changes by the day). Maybe some of the selling has been to fund the panic food buying, but most has just been the fear of falling share prices.
Pile in yet?
In more normal times, I meet people during the day and, whenever there’s something going on with the stock market, they ask me what I think. And they tell me what they think. And what they think is usually more driven by common misconceptions than actual understanding.
I’m not meeting people right now for obvious reasons, but I know what they’d be saying. I reckon it would range from things like “I bet you wish you didn’t invest in shares now” to “Is it time to pile in yet?” My answer to both would be no. To the second question, it’s not that I have any idea at all where the bottom will be, but that the piling-in approach is really not the way to be looking at long-term investments.
If I were just starting now, my plans for the next few months would be relatively simple. There are, I think, lots of over-sold shares out there. But I think there’s a real chance they could be even further over-sold in the coming weeks and months.
Dripping my investments
So I’d simply be dripping my savings into a Stocks & Shares ISA as regularly as I can. And then I’d spread my share purchases out over the next three months, six months, or whatever. It wouldn’t really matter to me if I bought some shares one month and saw them fall — it would just mean I’d be able to buy shares even cheaper next month.
And I reckon that regular drip-investing approach would spread my purchases out over the downturn. Also, my average buying prices would be significantly lower than they’ll be in a year or two’s time. And definitely lower than where prices will be in five years.