A lot of people wait years or decades before putting their investing dream into action – if they ever do it at all. But if I had never invested before and was waiting to start buying shares, I think now could be a great time to do so. That is exactly what I am doing at the moment, although I am not a first-time investor.
Here are three reasons why.
1. Attractive stock market valuations
The key to successful investment is buying the right share at the right price, although another way to think about that is ‘at the right time’.
The past several years have been bruising for the economy. One consequence of that is a lot of shares in high-quality companies have been trading relatively cheaply.
A common way of valuing shares is to use a price-to-earnings (P/E) ratio, basically dividing a company’s market capitalisation by its profits. Right now a lot of companies I think are attractive sell at low P/E ratios. Normally, the lower a P/E ratio is, the cheaper the company’s valuation. Next is on 11, Legal & General is at 6 and Barclays is at 5.
That could reflect risks that investors think might hurt future earnings. Indeed, although Barclays has a low P/E ratio, I have no plans to buy any bank shares for my portfolio in the near future as the banking industry continues to face considerable uncertainty in my view.
But the overall picture of the UK stock market is one in which a lot of good companies are selling for attractive prices. That could suddenly change, so I am snapping up bargains right now while I can.
2. Looming Stocks and Shares ISA deadline
Next week is the deadline for current contributions to a Stocks and Shares ISA in the current tax year. This runs on a ‘use it or lose it’ principle. After the deadline, I will be able to contribute to next year’s ISA. But any unused portion of my £20,000 allowance for the present year will expire forever.
That is not necessarily a reason for me to rush out and start buying shares, to be clear. The deadline is for contributions, so I could put money into my ISA before the deadline even if I do not have any immediate plans to buy shares.
But with so many bargains on offer at the moment, I am ready to buy.
3. Taking the long-term view
I believe in long-term investing. But how long is the long term?
Basically, the sooner someone starts investing, the longer their overall timeframe as an investor will be. That can help them benefit from the positive impact time can have on investment results.
There is a caveat, which is that even good shares can be too expensive, just as sometimes they might be selling for much less than they are worth.
So I would not start buying shares immediately unless I felt I could find shares in great companies selling at attractive prices. Fortunately, in today’s market, I think there are lots of those about!
