When is the best time to invest?
When you look at how some stocks have grown in value over time, you might be tempted to jump right in and start investing there and then. Or you might want to wait for prices to fall before you invest. But which method is this a good idea and when is the best time to invest? Keep reading to find out.
Capital at risk. Past performance is not a reliable indicator of future results.
When should I start investing?
The short answer is as soon as possible, because the earlier you start investing, the more time your money has to grow. However, before you start investing it’s a good idea to save an emergency fund. That way, if your boiler stops working or your car fails its MOT, you won’t need to sell your investments to cover the costs. Having an emergency fund might even make you a more confident investor because you’ll be less likely to panic sell your investments during a downturn.
Perfect for you: How much should I have in savings?
Before you invest, it’s also a good idea to think about what you’d like to use the money for and when you’ll need to access it. If you’re saving to buy a house in the next 3 to 5 years, it’s generally safer to keep your deposit in cash. Some people invest their house savings in the hope of a better return, but this could cause problems if you find the perfect property during a temporary market downturn or crash. If this happens, you may have to sell your investments at a loss to avoid missing out on your dream home.
Thankfully, with the help of a Cash Lifetime ISA, you can put your money to work and save a deposit sooner without risking your money on the stock market. Save up to £4,000 a year in your LISA and the government will boost your savings by 25%, up to £1,000. You’ll earn interest on your savings too — 4.75% AER (variable) if you open a Tembo Lifetime ISA.
If you’re saving for retirement, investments will usually outperform savings in the long term (although this isn’t guaranteed), so you may prefer a Stocks and Shares ISA or LISA over a Cash ISA or LISA.
Read more: Is an ISA better than a pension?
You might also like: How to open a Lifetime ISA in minutes
Grow your house deposit with a Cash Lifetime ISA
Save up to £4,000 per tax year in our Cash Lifetime ISA for your first home or retirement and you’ll earn 4.75% AER interest rate (variable) and get a 25% government bonus of up to £1,000 per tax year. Download our app and start by adding just £1.
When considering opening a LISA, remember that withdrawals for any purpose other than buying a first home or for retirement will incur a 25% government penalty, meaning you may get back less than you paid in. By saving into a Lifetime ISA instead of enrolling in or contributing to a pension, you may lose out on contributions by an employer (if any), and it may affect your entitlement to means-tested benefits.
When you come to actually choosing where to invest your money, you need to think about the amount of risk you’re comfortable with. Higher risk investments tend to offer better returns than lower risk investments (though there are no guarantees), but taking on more risk than you’re comfortable with could lead to sleepless nights and emotionally-driven investment decisions. If you’re risk averse, you might be more inclined towards with a slow and steady investment portfolio made up of a combination of low risk index funds, bonds and cash.
If you’re good at keeping calm under pressure and you’re happy to lock your money away for 20 or even 30 years, you may prefer to choose a more adventurous investment strategy. Before you do this, it can be worthwhile to speak to a financial advisor.
Learn more: Active vs passive investing. Which is better?
What is the best time to invest money?
There’s no such thing as the best time to invest money. Stock market prices can fluctuate throughout the day, meaning you could buy a particular stock or fund while drinking your coffee in the morning only for it to be worth less than you paid for it by the time you’re brushing your teeth. Thankfully, this doesn’t mean you’ve made a bad investment or you’ve invested at the wrong time. If you’re investing for the long term and building a diverse portfolio, these day-to-day changes won’t matter.
No one knows exactly how the price of a particular stock or fund will change from one minute to the next, but we do know that fluctuations are inevitable and stock market investments tend to outperform cash in the long run. In fact, looking at the last 30 years, investments have outperformed cash annually by 4%.
Capital at risk. Past performance is not a reliable indicator of future results.
When can I invest in a new ISA?
It depends on whether you’ve used up your ISA allowance for the current tax year, which runs from the 6th April to the 5th April the following year. You can save or invest up to £20,000 each tax year across different types of ISA, including Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs and a Lifetime ISA. If you’ve not used any of these accounts this tax year, then you can invest up to £20,000 into a new ISA before the 5th April. Then from the 6th April when the new tax year starts, you can invest another £20,000. But remember that would mean you cannot put any more money into other ISA accounts until the following tax year begins.
Good to know
You can open and pay into more than one Cash ISA, Stocks and Shares ISA and Innovative Finance ISA each tax year, as long as you don’t save more than £20,000 across all ISA accounts you hold.
Remember that if you’re a first-time buyer or you’d like to save for retirement outside of a pension, you can save or invest up to £4,000 of your annual ISA allowance in a Lifetime ISA each tax year. Once you’ve maxed out your LISA, any additional savings or investments will need to be spread across other ISA types (so the remaining £16,000).
Keep in mind that you must have a Lifetime ISA open for 12 months before you can withdraw your savings penalty-free. If you make a withdrawal before you’re 60 for anything other than your first home, you’ll be charged a 25% LISA penalty on the amount you withdraw, which may result in you getting back less than you put in.
Start investing today with a Stocks and Shares Lifetime ISA
Open a Stocks and Shares Lifetime ISA with Tembo today and not only will you benefit from the 25% government bonus, you’ll also be doing some good for the world too, thanks to our high-growth ESG fund. If you’d rather keep your savings in cash, take a look at our Cash Lifetime ISA, offering our market-leading 4.75% AER (variable) interest rate.
