I have to argue against this (with the obvious forewarning that the market can go down).
If we were to presume that the poster:
- has high-interest debts
- has no emergency fund and is financially unstable
Then obviously they shouldn't open a SIPP today and whack a load of money into it.
But if they
- have a good emergency fund (3-6 months spend)
- have no high-interest debts
- have no immediate financial goals (like saving for a house deposit)
Then why shouldn't they start investing now? The general rule of thumb (as far as I see it) is the best time to start investing is ASAP. Don't try and time the market because there is just as much chance that it could go up - no one knows. All the uncertainty and high inflation are factored into the current prices anyway, so I'd argue it's incredibly unlikely that the market would further drop by up to 40% within a year.
Remember, the alternative is presumably to hold cash - which is effectively losing around 13% of its value currently?
I covered all of this in my post: “unless your investment realisation horizon is 20+ years and you are certain you will not have any cashflow issues in the impending global economic decline.”
But even your “good” scenario would not be sufficient for the economic downturn coming. People are underestimating the depth and breadth of market instability and dysfunction.
And “all the uncertainty and high inflation are factored into the current prices anyway” is not correct; that is a falsehood in the “everything is priced in” narrative being perpetuated by inexperienced retail traders that have become a more prominent force (both within markets and within broader culture) over the last few years.
Most have only invested/traded during a time of “stocks only go up”, instigated by the largest monetary and market intervention in human history, which is now being unwound due to functional, emergency requirements. It is a fundamental misunderstanding of market dynamics that has continually seen them “buy the dip”, as the the markets keeping dipping.
And the last thing someone that may have serious cashflow issues in the coming deep global recession would want in sustained high inflation conditions would be to have a double hit to their buying power by locking in their pound or dollar denominated savings in to equities that are losing value. If you held £50,000 in a low yield savings account, even with inflation, it would outperform an investment account continually losing value in addition to buying power. And that’s not factoring in the loss of value when a large number of people begin selling assets to cover cashflow deficits (see UK pension debacle currently taking place for an example of the spiral that ensues).
I say all of this as a person that has worked in financial data analytics for my entire career and has degrees in economics, statistics, and analytics and access to underlying credit and risk market data not available to most.
We have barely realised a bear market and calls for this being the “bottom” are pure desperation. There is a reason most seasoned, respected analysts are saying there is far more pain to come.
What is happening with GILTs, BoE intervention to prevent more asset dumping, and the volatility in global bond markets are merely early warnings of what is to come.
We are far from a “bottom” and anyone buying now needs to understand that and determine if losing 20-40% of the value of their investment from here, with a likely 5-7 year recovery to just nominal initial cap outlay (this is going to be a long recovery, nothing like 2020 for many reasons) makes sense for their financial situation given the impending global economic downturn.
My advice not to buy now is based on statistically significant data showing “most” people are not in a strong position to weather the storm that is coming and so should not be making decisions that would put them in an even worse position. Many aren’t even in a position to manage the current situation.
What people do now will have a significant impact on whether they are able to navigate what is to come. There should be an acute focus on protecting cashflow, as it matters little if you have a large investment account when you cannot meet you current financial obligations (which forces you in to an asset dump that begins a vicious wealth destruction cycle).
