Recent weeks have provided a powerful reminder that stock markets climb the stairs but go down in the lift. With exquisite irony, Europe’s largest private equity deal in a decade, agreed just as the crash began, was the €17.2bn purchase of the continent’s biggest elevator maker. Those deal-makers, along with the rest of us, have suffered a descent so rapid that comparisons with the crash of 2008 are not misplaced.
But despite stomach-turning headlines, the best response is to shrug and get on with your life. Pessimistically, this is partly because the damage is done—it is far too late to panic and sell. But optimistically, it’s also because this is precisely the time when sticking to the script will pay off.
Most people do their most important saving regularly every month into pensions or Isas. Saving this way benefits from so-called cost-averaging, whereby your fixed monthly amount buys more of an asset when its price falls and less when it goes up.
Looked at this way, big equity market dips are moments when your monthly contribution will go further, buying more shares or units in your chosen funds. This helps to bring down the overall average price you pay for your holding and so benefits your average cost.
Automating your investments in this way removes the need to worry about when to buy or sell. If you let cost-averaging do the work for you, it might not give you a perfect result but it is very likely to turn out better than if you decide when to invest for yourself. And knowing that the process is working on your behalf should help you ignore the noise and relax.
The new generation of saving and investment apps—I use one called MoneyBox—highlight another area where automated investing can help. These allow you to link your bank account to an online investment service, which then rounds up your card purchases to the nearest pound—if you buy a sandwich for £2.95, then five pence will go into the pot. Once a week these “round ups” are automatically swept into an Isa or Sipp and invested in one of a range of portfolios, depending on how much risk you want.
This is brilliant because, again, it removes the mental effort required to do things that are in our long-term interests but are difficult to get round to. These apps make it happen automatically, and almost invisibly—and for younger people without much to invest, you can get started with a few pounds. Then just get on with the rest of your life and let the software take the strain. It’s more relaxing than watching the news.
