To Invest Or Not To Invest

Is now the right time?

If only we knew at the beginning of 2008 what we know now. What investment decisions would we have made? Would they be different from those we did make?

Who would have guessed that Lloyds TSB and Royal Bank of Scotland shares (to pick just two) would be trading between 20p* and 40p** today compared to £6.00 or more in March 2007***. Certainly nobody predicted they would have 41%† and 83%† respectively of government money invested within them.

Rumblings of another recessionIs Cash The Safest Investment Option?

With rumblings of a second recession and stock market crash, surely now is the time to stick your money away in a bank account and accept a modest return on your investment knowing that inflation may be eating into the real buying power of your cash?

Is cash a risk in itself?

Depending on your attitude to risk and outlook for the future, tucking your money away in the bank may well be the best option for you and the right route for you to take.

Indeed, if other investment options generate the same returns as cash, why risk your capital when there’s no potential upside? The simple answer is you wouldn’t.

For those where the decision is not so clear cut and cash returns are not acceptable, what to invest in and, just as importantly, where to invest your money is a dilemma.

Historically, investing in stock markets has generally provided a greater level of return than cash, particularly over a period of 10 or more years (with dividends reinvested).

Current market volatility

Falling Stock Market And Market VolatilityTo most investors, the recent fall in the markets is unnerving. Seeing any fall in your investments, however rapid, gives a perceived loss of capital.

Yet falling stock market prices often provide a good opportunity for those with cash to invest for the medium to long term. For one thing, you get more for your money.

This is particularly true for those who regularly add to their investments over a period of time, on a monthly basis for example. The longer the market stays reduced, the more stock you are able to buy at a cheaper price within your portfolio(s).

This type of investing is often referred to as pound cost averaging and helps smooth out any market volatility.

Aggressive or defensive tactics?

For some, market volatility can also provide an opportunity to change tack.

Those who have kept their money in cash or cash oriented funds may feel this is the time when better value and therefore more profitable long term investments can be made in certain markets.

What should you do?

There is of course no right or wrong way. It is essential that your decision to invest, and where to invest, is based on a 360 degree view of your personal circumstances, financial objectives, lifestyle, attitude to risk and current financial portfolio.

Successful investing and risk management

Investing for the medium to long term is key to successful investing.

So too is managing the amount of risk you wish to take by selecting the right products, in the right markets and changing them appropriately based on market conditions.

When considering your investment options, you need to have a purpose in mind. It could be for capital growth, to generate an income, for efficient tax planning purposes or a mixture of all of these reasons and perhaps others.

Being Clear About Your Level Of RiskBeing clear about the level of risk you’re willing to take is just as critical too. This will depend on your personal circumstances and outlook, as well as the market conditions.

The greater the risk, the greater your potential gains should markets rise but the greater your potential losses should markets fall.

Let's not forget, nobody takes risk for the sake of it.

Wherever possible, we recommend a balanced portfolio that incorporates a number of different investment vehicles to help you achieve your desired returns and alleviate the effects of market volatility.


Article by Mike Rawson
Independent Financial Adviser
Legal & Medical Investments
August 2011


* Source: 25th August 2011
** Source: 20th August 2011
*** Source: March 2007
† Source: 23rd August 2011

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