A dip in the stock market: is now a good time to buy?

October 21, 2014

You might have noticed in the news that the 15th October saw the biggest slide in the UK stock markets in the past four years. October tends to be a tricky month on the markets but a definitive reason for this latest slide hasn’t really been identified. It’s been linked to general fears that the economic recovery might be slowing down, sparking a global sell off. London’s FTSE 100 index was down by around 10 per cent since the beginning of September, wiping out the gains many investors had made since the beginning of the year.

If you dabble in the stock markets, or have been considering investing, does this present an opportunity to snap up some shares or is it a warning to sit back and wait to see what’s going to happen next?

Views will always be mixed. For some investors, buying when shares are unpopular is like shopping in the sales – there are some bargains to be had, even on good prospects. But that can feel a bit risky. What if the ‘dip’ is the sign of a full crash on the horizon? Where will the slide stop? Buying up now might increase your chances on taking a hit if the markets fall even further.

The general advice is that it pays to look at the wider picture. Most people in the industry don’t seem to be too concerned about any long-term impact from this latest slide and do not see the need to panic. They view it more as corrective action than the beginning of another impending downturn. Whilst everything might have gone a bit mad, it seems unlikely that after all the recent effort that’s gone in to keeping markets pumped up, the likes of the US would let it slump. There has been much made of quantitative easing (QE) in the press but we believe it to be a bit misleading.  The US has been tapering back its QE for nearly 12 months and the Eurozone has had a distinct lack of QE, something for which the European Central Bank has come in for some criticism. So, we don’t believe that QE is the driving force.

Rather than make any rash decisions either way, don’t be afraid to sit tight and assess everything before making a decision. It could be a very good time to invest, but it’s important to look at the individual shares within the markets. Be picky to stack the odds in your favour. Look for stocks that show strong revenue growth, strong earnings growth and high margins. Some steady performers are valued lower than you might expect; now could be a good time to invest in them.

The key is that you must be willing to leave your investment in stocks for a minimum of five years to mitigate your risk of losing out. If you’re not comfortable with that length of commitment, the stock market might not be the best investment opportunity for you right now.

This article is for general use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be or constitute advice.

GreenSky Wealth Ltd is an appointed representative of Financial Limited which is authorised and regulated by the Financial Conduct Authority. FCA No: 516410