It might not have felt like it, but stock market investors have just enjoyed one of their best starts to a year for 20 years.
The question is, as the end of the tax year looms into view and another year’s ISA allocation drifts by, will ordinary investors miss out on it?
What am I talking about? Well, the S&P 500 has just bagged its biggest percentage gain in any January-to-April period since 1998, rising around 13%. That also makes it the best quarter of any kind since 2009.
There’s some qualifying information to keep in mind. This is one index covering the US market and your portfolio will probably include many other stock markets as well. However, it is still very significant because the US market is the largest in the world and will account for an outsized chunk of any global equity portfolio. Companies at the top of the S&P are likely to be the largest in any well-balanced investment account.
Why do I ask whether investors will miss out? Well, because there are signs that investors have been shunning equity markets - whether that’s selling assets or simply declining to invest - at just the time this bounce took place.
Latest stats from the Investment Association - the trade body for fund management companies that handle the bulk of retail investors’ money - show that net sales into funds turned negative in the final months of 2018 and in January, when the bulk of the recent rises took place, more than half a billion pounds flowed away from equity funds overall.
It’s often said that retail investors have terrible timing when it comes to markets - acting too late and then in haste when the markets news is negative, so that they suffer the dips but then also miss out on the recoveries when they come. The start of 2019 risks being one of these occasions.
There’s a simple way to remove this risk - by not being tempted to time markets and to invest your money in regular contributions so that, when markets fall you purchase assets for a lower price and stand ready to benefit when the recovery comes along, as it tends to do.
And timing markets doesn’t have to mean moving your money in and out of the market en masse. It can also mean simply declining to reinvest, or shifting regular contributions into cash for a while.
That’s worth bearing in mind as the final week of the 2018/19 tax year rolls by and a potential £20,000 of tax-free ISA allowance disappears.
Playing the recovery
Global funds typically include a heathy weighting to the US, where gains have been strong and economic growth, although weakening, remains ahead of other mature markets. The Fidelity Global Dividend fund invests across the world with a focus on those companies offering a steady and rising dividend. This tends to give them some ballast against the ups and downs of stock markets.
This fund is one of Tom’s ISA Picks for 2019
Five year performance
As at 29 Mar
Past performance is not a reliable indicator of future returns
Source: F.E, as at 29.3.19, in local currency terms with income reinvested
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The value of investments can go down as well as up so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular product, service or course of action. If you are in any doubt we recommend that you seek advice from an authorised financial adviser.