I was having lunch with a friend of many years the other day. When I asked why he was not currently invested and why he had not been for some time, he replied that it is too dangerous a time in the world with too many problems and that we were on the verge of a global market collapse. Further investigation revealed that he had had his money in the bank, largely unprotected against bank failure and earning less than a single digit interest rate (and that was for his Sterling) which was also taxed. What made it worse was that the majority of it is in Euros and he was actually having to pay charges to the bank for the privilege of keeping it there.
Although this sounds an extreme example of bad financial planning, it shows that we need to take professional advice sometimes. We need to diversify and we need to understand that the world is no worse or insecure than during the terrible wars and crises of the past. Money is not a Will o’ the Wisp, disappearing into thin air when not being utilised; it has to have a home in which to dwell for better or for worse. The secret, therefore, is to place it for the better in homes that are largely secure, allowing you to diversify smaller amounts somewhere else for better returns. In this era of low interest rates, which is set to continue for quite a while, that home should not be in a bank, except for your current account and a cash reserve for emergencies and planned spending over the next, say, 2-3 years. There is limited protection against bank failure and the return to be obtained is taxable and insignificant.
My old friend lamented that this was not the time to enter the market, to which I replied that there is no good time until you have left it too late (this is true of most markets). It is not market timing which is important, but time in the market. Unless you have a trading account for speculative investment, you must always plan to invest for the long term (5 years plus). The investment house Fidelity produced some excellent statistics which showed that (once invested) by not being in the market for just 10 specific days in the last 10 years, you would have lost nearly 50% of the market (London FTSE100) growth each year versus staying fully invested. Missing 20 days, this would have been halved again.