With stock markets plummeting over the last year and a half and the fear of losing our job hanging over us, how is it possible to think about investing right now? Equity markets have more than halved. What is to stop them halving again?
There is no doubt that we are experiencing one of the worst bear markets in history and it may well continue for a little longer. But there is one thing that you can be absolutely certain of: this bear market, like all others before it, will end.
And when it ends, you will not want all your savings to be in the bank. Like many investors before you, you could end up missing the first phase of the stock market recovery, a phase that is usually both swift and substantial.
You may tell yourself that you’re happy to wait. And that’s a natural reaction given the severity of this bear market, which has sent us all running for cover. But missing out on this phase could significantly affect your long-term investment returns.
The trick is to ignore market volatility and maintain some stock market exposure in a disciplined, relatively stress-free way.
Which is where the MIP (Monthly Investment Plan) comes in.
By feeding money into the market at monthly intervals the MIP allows one to build positions gradually. If markets stay soft, well, the more your money will buy at any given time; and if they go up, then your purchasing power goes down but the overall value of your portfolio increases.
The great thing about an MIP is the control it offers. You fix the amount you want to invest; you decide where you want to invest; and you can stop* and re-start the plan at any time. It’s not a magic solution but it can help you avoid a lot of the investment mistakes that we are all prone to. Now read on…!
*The minimum initial investment and holding period differ with each distributor.