Keep Investing in the Stock Market in 2018!

After a stellar 2017, there is plenty of talk about stock markets, particularly in the U.S., being overvalued and a correction being imminent. However, a recent piece in Forbes magazine sensibly argues the case for those investing online through an ISA, SIPP or standard stock broking account to keep putting cash into shares.

 Firstly, there is no guarantee that stock markets will drop this year. In the UK, the FSTE 100 and wider London-listed market didn’t see the same spectacular gains as peers in the USA, Europe and parts of Asia. So there could still be plenty of room for growth there this year. Also, while tax reform in the U.S. might not have the huge impact many hoped, with a lot of the gains already priced in last year, it could help keep markets stable and combine with improving earnings to provide more positive returns this year.

However, disregarding all of that, the central point to the Forbes piece is that we should keep giving our custom to our online stockbrokers regardless of what happens in equities markets this year. Why would anyone investing online buy shares that have a significant chance of tanking in value we hear you say? “Dollar averaging”, says Forbes.

That can be converted into “pound averaging” for the local context but the principle remains the same. The idea is that rather than piling as much money into shares as possible when expecting markets to rise, investing online successfully is better served over the long term by consistently investing smaller amounts of money regardless of what is happening to share prices. In fact, where possible, sums invested should be increased when markets are falling.

Buying some shares constantly and more if possible when the market is down, will lead to an investor achieving a lower average purchase share price over time. And for long term investors this will boost final returns. For UK investors, especially those with SIPPs, taking up as much of the annual allowance as possible every year is also key to the final value of an investment portfolio held with an online stockbroker. Investing in a SIPP results in an automatic 20% boost to cash put in by having income tax refunded and added.

The article also has some advice on what to invest in. ETFs are put forward as the most cost effective way for smaller, retail investors that don’t have a lot of experience or knowledge in picking shares to spread risk effectively.