When you invest, you want to know you’re making the right decisions with your money. Nothing is completely risk free, but there are simple things you can do to maximise your returns on the stock market. Could timing your investments be one of them?
Investing at the wrong point can leave you on the back foot from the very start – which can weaken even the hardest of investor resolve. Many investors try and time the market to buy investments when the price has fallen and sell when they have risen, pocketing the profit.
Against an investment industry that is often criticised for its complexity, it can sometimes feel like you need a complex investment strategy to maximise your returns. Yet, timing the market is notoriously difficult and can lead to many a sleepless night.
Time is your friend on the stock market
Many investors are looking for something complicated to give them the edge on the stock market, when time is one of the only things you really need in your arsenal. The longer you have to invest, the more risk you can take with your investments.
Risk is one of the most misunderstood concepts of the financial markets. After all, it’s the dynamic between risk and return that allows investors to hunt for bigger returns than those offered by cash savings accounts. The more risk you can take, the larger your scope for returns – but also the further your investments can fall.
Your time horizon influences your strategy – where short-term investing can mean anything from a couple of hours to a year, long-term investing can be anything from five years onwards.
Where a short-term trader will need to know the best times to buy and sell on the stock market – Mondays are the best days to buy and Fridays the best to sell, by the way – a long-term investor focuses on the long-term value of their investments and economic/market trends.
When you’re investing for the long-term, the short-term fluctuations of an asset’s price won’t matter as much. As long as the underlying fundamentals are positive, you won’t remember that could have saved a couple of pence by investing in the morning when it comes to your retirement in 30 years.
This way you only invest or sell when the economic backdrop shifts, when the fundamentals change or the investment becomes overvalued.
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Managing your family’s investments shouldn’t keep you up at night. Many savers are put off trying to offset the impact of inflation by investing their money because they feel they are too busy or don’t know enough.
Everyone should have the confidence to make their money work harder for them and achieve financial security.
How pound cost averaging can help maximise your returns
Instead of spending hours agonising over when you’re going to invest your money, you can maximise your returns through pound cost averaging.
By investing a little and often rather than a lump-sum, investors hope to smooth out fluctuations in an asset’s price over time. In theory an investor is able to buy units more cheaply on average and can be particularly beneficial during turbulence and uncertainty.
It also means you can tune out the noise and avoid making any knee-jerk reactions that could leave you worse off in the long-term. Impulse investing is one of the worst investing habits to have.
Pound cost averaging can also help investors establish a disciplined and regular investment habit, taking away the worry of finding the right time to invest. In doing this, you take the emotion and speculation out of the investment process and focus on the long-term fundamentals of your investments.
Of course, if you spread out your payments of an investment in a rising market, you risk paying more for your investments than you would if you invested a lump-sum.
You can’t escape risk, especially if you want to protect your money from the impact of inflation and grow it for the future. What you can do is manage the risk in your portfolio to ensure you’re in the best position to maximise your returns.
Instead of making time your enemy by worrying about when you should buy or sell your investment, think of time as your friend and look to average the cost of your investments over time. That way, you can look to maximise your returns whilst focusing on the important things in life.