Aegis Financial Consulting

All Time High

I don’t follow the daily movements of the FTSE 100 for much the same reason as I don’t follow the exact time of sunrise every day – it largely doesn’t matter to my day to day activity, and the long term pattern is much more useful than the short term noise.  However, I saw a Facebook comment today which made me chuckle, and I thought it would make for a good subject for an article.  It also reminds me of a question that I have posed to clients at various times in my career, which is “If you could pick any time in the last 20 years to invest in the FTSE, when would that be?”

The answer invariably tends to be “after one of the big crashes”, meaning 2002 following the Dotcom Bubble (not strictly within the 20 year timescale any more, but it was at the time the qestion was last asked to a client) or 2009 following the Global Financial Crisis.

In reality, the answer is almost always much simpler, in that the best time to invest in the last 20 years is almost exactly 20 years ago.  As I like to ask the question from time to time, it makes sense to look at the data again now to see whether anything has changed.

Loading up my trusty investment monitoring software, I can generate the following chart, which shows the effect of investing into the FTSE100 20 years ago.  The assumption of this chart is that all dividends are reinvested, hence the shape of the chart looks a little different to the usual FTSE 100 charts, which solely look at the capital and ignore dividends.

Importantly, behind the label on the chart, there is a slight dip below the axis after the Global Financial Crisis, indicating that it would actually have been marginally better to invest in 2009 than 2004.  However, it is worth looking at the psychology that would be required to do this.

Casting my mind back to early 2009 (coincidentally early in my financial career), I remember panic more than anything else.  People were moving money from perfectly safe institutions to even safer ones purely because they believed there was a risk to capital from the widespread contagion affecting the financial services sector.  People were selling their investments and reverting to cash and gold, and it was a very rare individual at all that saw this as an opportunity to buy into the FTSE.

So the question becomes not just “when would be the best time to invest?” but “when should I invest?”  to which my answer is simple: you should invest as soon as you are able and not try to time the market. Chances are you will be worse off by trying to time the market, and at worst you might actually find yourself unwilling to invest at all because of the negativity that accompanies the best buying opportunities.

There’s an ancient proverb which sums this up, which goes something like:

“The best time to plant a tree that you want to rest under is 20 years ago. The second best time is right now.”