Stock Market & Coronavirus: Now a Good Time to Invest? | IFG

Why the long-term focus?

Because the data suggests that with a long term focus, the stock market can give you e xcellent returns.

That’s because although the returns from year to year can vary massively, once you start averaging out your returns over 5, 10, 15 years plus, you start hitting some great numbers.

This article explains it very well.

I would also add that alongside a long-term mindset, you should have a plan to invest monthly and keep topping up whatever you’re invested in. That way, you’ll benefit from any price drops that may occur. A concept known as “cost averaging” where you smooth out your entry price over time. That gets rid of the elusive question of “when is the right time to invest?”.

In summary: a long-term mindset with the stock market, reinvesting any dividends you receive, and tucking money away regularly into the stock market can give fantastic returns.

But I want to make money quickly!

I know. We all do. But the stock market has made fools out of people much smarter than you and me.

You’ll hear lots of people give stock market tips but having dabbled in short-term trading before, I think that for 99% of people, it’s not the right thing to do. Not only is it really difficult to do well over a sustained period of time, but it’s also emotionally an absolute rollercoaster. You might make money a few times but it’s more down to luck than good judgment and won’t last.

If you’re in the 1% that really understands short-term trading and you’re making money from it, then I’m happy for you but you’ll know better than anyone how hard it actually is.

Where should I invest long-term then?

For most people, investing in a sharia-compliant fund is what makes most sense. That’s because it’s the most hands-off approach that has no additional learning curve. You’re effectively buying a slice of a fund which in turn has invested in hundreds of companies. You don’t need a lot to start with (you can get started with a few hundred pounds).

If you go to our investment comparison page and filter for stocks and shares, you’ll notice the Aberdeen Islamic Global Equity Fund. This is a sharia-compliant fund which invests in large, well-known companies (its top 10 holdings include the likes of Adobe and Nestle, for example).

Investing in this sort of fund gives you good exposure to a large range of companies and so your returns should generally be in line with however the market turns.

If you want a more DIY approach, you can invest in individual companies that you’ve chosen yourself. For instance, in that list above, you might think that Easyjet has been unfairly battered and that they’re fundamentally a good business whose share price will recover. There’s a lot more to share investing than off-the-cuff thoughts like this but these pure commercial thoughts are a good starting point which should trigger a deeper dive.

If you are going this route, just make sure that the companies are halal to invest in. That doesn’t just mean that they’re not gambling or pork companies. There are things to check in their financial accounts. They’re not that complicated, but once you understand them you’ll see what the automatic stock screeners aren’t comprehensive. See here for help on screening companies for sharia compliance.

Key take-home messages

• Crashes are a good time to start investing if you have a long-term mindset
• Don’t invest in the stock market if you may need access to your money in the short term
• You should decide whether it’s more appropriate for you to invest in a fund or to select individual companies
• Don’t take tips from the uncle down the masjid/your taxi driver/cleaner/etc.
• Check out our halal investing comparison page to get started