Investing is difficult. In the short run, the best times to get invested are when we least feel like it – when there is metaphorical ‘blood in the streets’, to borrow a phrase. Conversely, when it feels most comfortable, when even the gloomiest dismal scientists are happy – this tends to be the moment to trim risk exposure.
However, that is really only the short run, and should not be seen as a way to manage your entire portfolio of assets. Being invested in a range of stocks, bonds, alternative trading strategies and commodities is generally going to provide you higher inflation-adjusted returns than you will receive from your bank account. The further into the future you are happy to look, the less you need worry about calling the next recession, the more you need to just put your cash to work and forget about it.
While history isn’t always a reliable indicator of what will happen in future, it does seem to tell us very clearly that, unless you think you can predict a recession within the next three months, on average you’ve lost out by not being invested. It could still be a long and painful wait for those out of the market, based on the indicators that we look at.
“The harrowing experience of the last crisis left many reluctant, or simply unable, to risk their hard-earned capital again.”
Simon Smith, Head of Overseas Investment and Brokerage, Barclays, Jersey