Time in the market is better than timing the market

What about the US-China trade war? And then there is the state of global geo-politics – Russia’s persistent trouble-making, the mullahs in Iran and that funny little man who runs North Korea.

What matters is time in the market because that is how you make money, and respecting the market.

Respecting the market means having a diversified portfolio so all your eggs are not in one basket, taking a medium to long-term view, and operating on the basis of probabilities. Holding your nerve is vital. Shares go up and down, market corrections come and go, trying to predict when these things are likely to happen is almost impossible.

Jumping in and out of the market is rarely a good strategy.

It is all too easy to find yourself buying near the top and selling near the bottom. Remember, time out of the market is time lost for ever.

And the alternatives are not great. Low interest rates coupled with inflation mean negative real returns for most savers in spite of recent interest rate rises.

Andrew Williams, an investment specialist at Schroders, puts it this way.

“Nobody knows what the future holds. Think not in terms of black and white or right and wrong but in terms of probabilities.”

Yet how does that square with Brexit turmoil?

Trevor Greetham, head of multi-asset at Royal London Asset Management, told Money Marketing in July: “Experience to date suggests key issues will remain unresolved until the last possible moment and investors will have to remain open to all possibilities.

“Sterling could easily be ten per cent lower on a no deal Brexit and it could easily strengthen by ten per cent if the UK ends up in an unexpectedly close relationship with the EU. Sudden swings in sterling can have a major impact on multi-asset portfolios.

“Investors need to accept that it is going to be very hard to get an edge in terms of tactical positioning as the most important decisions will be made between politicians behind closed doors.

“It makes more sense to focus on investing in a mix of assets that is likely to be resilient in a wide range of scenarios.

“It helps to have exposure to growth-sensitive assets that are likely to behave differently from each other in different scenarios.

“UK equity prices tend to rise when sterling falls and vice versa, as they are valued off a stream of earnings sourced predominantly from overseas. UK commercial property is valued off a stream of sterling-denominated rents, so it is less impacted by changes in the exchange rate.

“Brexit is a ‘known unknown’ but it still has the power to move markets in a major way. No one can predict the final outcome with any degree of confidence, but everyone can take steps to ensure their investments are not too exposed to the political uncertainty one way or the other.” Trevor Law is managing director of Eastcote Wealth Management, chartered financial planners,

based in Solihull. Email: tlaw@eastcotewealth.co.uk

The views expressed in this article should not be construed as financial advice