OpinionMay 29 2013

Don’t wait to catch the stock market

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As I write this the FTSE 100 index is standing at 6,764, its highest point since 2000.

Some analysts are forecasting it could breach 7,000 before the end of the year. Others are suggesting it has already gone a long way very quickly.

My business today is not to speculate on what is driving stock markets but to consider the predicament of small investors and the effect rising share prices inevitably seems to have on them.

I have lost count of the number of times I have overheard people saying something like: “The stock market has been doing well lately; I think I’ll invest some money.”

If anyone had suggested investing to these same people a year ago they would not have touched it with a bargepole.

Would they, I want to ask them, wait until a car increased in price by 20 or 30 per cent, then decide it was good value and go out and buy it?

Even now I read reports of investors chasing dividend income because of poor returns on savings accounts. But how much better that income would have been had they begun investing a year ago.

At times like this smaller investors desperately need financial advice. In the past they might have gone to their bank where a salesman would have rubbed his hands before flogging them an expensive underperforming in-house fund or maybe an investment bond for a whacking great commission.

Where should these smaller investors go now? Many have not got the sums to make it worthwhile paying for good financial advice. Increasingly these people will come to rely on information they find on the internet.

And here we come to another concern. It has never been easier for someone to invest their life savings at the touch of a button. I suspect this is one reason why the regulator is looking closely to ensure the line between advice and information is clear.

The dangers of investing lump-sums in a rising market are illustrated by Fidelity’s figures showing the importance of time over timing. Someone who invested £1000 in the FTSE All Share on 30 April 1998 would have £1962.04 by 30 April 2013. But if they had missed the best 40 days they would have just £355.41. Missing the best 10 days would reduce their saving to £1061.17, that is, they would have made just £61 profit.

As always, regular saving would seem to be one answer.