My advice to GPs about to ride on the stock market rollercoaster is always the same: running an investment portfolio on the basis of getting your timing right rarely works.
The length of time that you are invested for is what really counts - not exactly when you put money in and take it out again. There are only two prices that matter: the one you buy at and the one you sell at - not how prices rise and fall in between.
Unless you are super-rich and can afford to speculate, the best strategy is to put your money in funds that will be managed for your benefit over the longer term - 10 years or more.
In general, most stock market movements - apart from those caused by major incidents like 9/11 - are caused by uncertainty. Recent falls in the market were due to nervousness about the possibility of higher inflation and interest rate increases in the UK and US.
Nobody can say with any precision when the market is likely to go up or down. However a good investment fund manager can pick companies that are better managed than others, and identify potential growth sectors.
For real peace of mind, save regularly so that you can benefit from the market's volatility.
When prices are falling, your monthly payment will buy more units in the funds you invest in; when prices recover, you will have more units with a higher value. Drip-feeding like this is the perfect solution for GPs who worry about timing their investment. Think how anxious investing a large sum in one go would make you feel.
If your long-term goal is to cushion your retirement or leave money to your children, there is no need to panic if prices fluctuate. Avoid the temptation to check your investments daily - review them annually instead.
Remember that time in the market that is more important than timing the market.
By keeping some of your funds liquid in the form of cash, deposits or short-term government stocks, GP investors should be able to avoid cashing in when prices are down. A pooled investment such as a unit trust is a good place to kick off.
Investing via tax efficient individual savings accounts (ISAs) is a good idea. Make sure you use your annual £7,000 allowance because it is given on a 'use it or lose it' basis.
Why not start investing now, even if you can contribute only a small amount, say £200 a month? Spread the risk by investing in different funds.
The return on stock market investment over the long term has always out-performed safe, cash deposit accounts. But please remember that past performance is not a guide to the future.
- Liz Willis is from the Medical Profession Advisory Division, St. James's Place Partnership, 07900 654401, email@example.com
TIPS FOR GP INVESTORS
- Your attitude to risk and the risk levels of the investments you are important. Some funds invest your money in shares; others invest in less risky government stocks, deposit funds and corporate bonds.
- Find a sector/region you are comfortable with. Are you willing to accept the higher volatility and currency fluctuations of, say, a Far East fund? Do you favour green or ethical funds or UK funds?
- Diversify. Ways to invest include property, pension funds, cash accounts and pooled investments, such as ISAs and unit trusts.
- Leave your investment untouched for at least five years, preferably 10. Do not cash because the market is falling. The FTSE-All Share Index rose by 138 per cent from 1986 to 1996 while house prices went up by 62 per cent, according to The Sunday Times.
- Start conservatively. Avoid high-risk vehicles such as venture capital trusts, futures and options, unless you have money to burn.