Finance

Best investment approach for private investors

Warren Ingram

Personal advisor and executive director at Galileo Capital, Warren Ingram, says that the best investment approach for a private investor is to set up a monthly debit order and never think of it again – just keep investing.

He noted that while lump sum investing is your best bet when markets are rising consistently for a long period of time, we are not sitting in one of those markets.

Pandemics, geopolitical tensions, and recessionary fears have plagued the market with volatility and uncertainty.

Ingram added that, realistically, there are no uninterrupted periods in the market over the long term.

“There are horrible times, and then there are euphoric times, and the happy medium for most private investors is small, consistent, and committed investments,” he said.

For example, Ingram picked the worst stock market return in US history, which lasted for sixteen years – February 1966 to October 1982.

Over these 16 years, a lump sum investment at the beginning of $1,000 would have grown to $2,900. However, once you account for inflation over the same period, it would only have been worth $950.

Alternatively, if someone had invested only $100 per month, they would have a very different return. Over the period, their total monthly debit orders were $20,100. This capital would have grown to $41,629 by being invested in the market every month.

Once you account for inflation, the amount would be $20,931. This might not be a fantastic outcome, but even during the worst stock market return period in US history, the approach protected the value of the money in real terms.

He added that building your position over time is key to this approach. Instead of trying to time the bottom and throwing all your money in at once, a better strategy during a market dip is to gradually build your stock positions over time.

This approach spreads out your investments and allows you to buy into the market at different times at varying prices that ideally balance each other out versus investing one lump sum all at once.

If you’re wrong and the stock continues to fall, you’ll be able to take advantage of the new lower prices without missing out.

“While your performance won’t match that of the world when it is doing incredibly well, you’ll be doing okay when the world falls apart,” said Ingram.

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