As we move into the final week of 2018’s first quarter, equities investors are already nursing a bit of a hangover from 2017’s party. Last year, and most of 2016 before it, was an almost uninterrupted bull run that saw major indices around the world, particularly on Wall Street, smash record high after record high. While Brexit uncertainty meant the UK’s FTSE 100 blue chip index didn’t quite match the stellar performance of most international peers, a 7.6% gain for the year was still a strong result. Globally, equities markets grew in value by $9 trillion, driving powerful gains for investors the world over.
Against that backdrop, perhaps it shouldn’t come as a surprise that the first 3 months of 2018 have been bruising. Last week the FTSE 100 finished Friday 3.4% down. Over on Wall Street losses were even heavier. The S&P 500 shed 6% for its biggest weekly loss in over 2 years. With only this week remaining, it seems certain that markets will record their first quarterly loss since Q1 2016.
Stock & Shares ISA rules mean that any unused portion of the annual £20,000 allowance must be invested over the next two weeks to meet the April 4th deadline. However, tumbling markets might be making investors question whether this is the right moment to be investing into equities. Several major international indices, including Japan’s Nikkei 225 and the Eurostoxx 600 have dropped below February’s lows, when a flash correction indicated we may be entering a new period of volatility. With the traditional end-of-quarter sell-off of risk assets, particularly equities, also set to be a factor this week and several big US companies, like Facebook, seeing big share price drops, it seems unlikely that markets will bounce back quickly. Many analysts believe the global growth rates that have been fuelling the bull market may have peaked and we are now facing the prospect of a deeper pullback.
So why would you invest your remaining ISA allowance in equities if it looks like there is a better than even chance equities losing value over coming months? Because one of the most important stocks and shares ISA rules to achieving long term returns is to largely ignore what is happening in the markets at any given moment in time. In fact, there is a clear argument that investing in equities now is a better bet than it was towards the end of 2017 when markets were on a tear. Even if the pullback continues for several months or longer, when the cycle moves back to a bull market the further in to a correction investments are made the better the subsequent gains when the recovery takes hold.
That doesn’t necessarily mean investing all of what is remaining of an ISA allowance immediately. Whatever you have left can be put into a stocks and shares ISA as cash and gradually dripped into equities over coming months. It’s not possible to accurately predict when the bottom of a correction will be reached. As such the best approach is to make regular investments so as much of the funds as possible take advantage of discounted prices without a reliance on calling the optimum moment.
Of course, investing in a falling equities market only makes sense if you have long timelines – ideally at least 5 years. This gives an investment portfolio plenty of time to ride out the bear market and then profit from the return of a bull market. If you think you may need to access your ISA funds sooner than that equities are usually not the best approach. That’s the case, again, regardless of current market conditions.