Does the stock market have the X Factor? Vote now

Shares have rocketed since March. Is it still worth getting in on the act now? Or will you end up a loser?

The Footsie reached its highest point of the year this week, prompting hopes that it could soon top 5,000. In fact, the FTSE 100 is standing at its highest level since last October. Since slumping to a low of 3,512.09 on 3 March, it has been almost all upward movement, which means investors who were brave enough to get in then are now sitting on handsome profits.

But will markets continue to climb? Thousands of investors believe it will and confidence is booming as people consider flooding back into the market in the hope of further gains, according to the Investment Management Association (IMA). Its Great British Investor survey revealed that 49 per cent of people believe now is a good time to invest.

"Although investors are still cautious, our latest report shows signs of increasing investor optimism compared to a year ago," says Richard Saunders, chief executive of IMA says. "If investor confidence continues to gain momentum, investors may start returning to the markets in the near term. IMA's sales statistics suggest this may have started, with the last six months showing healthy inflows."

Lloyds TSB Wealth Management's Investor Outlook report published this week backs that up with news that investors have an average of £28,000 invested in the markets today, compared with just £24,000 in December 2008.

"In the past few months, we have seen signs of stabilisation in the markets with some commentators suggesting the first 'green shoots' of economic recovery are starting to push through," says Prabal Gupta, investments director at Lloyds TSB UK Private Banking. "The signs may be small, but this confidence seems to be infectious. Rather than simply talking about recovery, investors are putting their money where their mouth is and cash is starting to flow back into the FTSE."

The problem for anyone thinking about dipping a toe back into the market is that no-one can predict with any certainty what will happen next. One view is that the recovery will continue and the Footsie will climb back above the 6,000 mark within the next two years. Another valid view is that we're heading for a "double dip" with markets set to slump again soon.

Investors are tempted by the fact that getting into shares when markets are recovering can mean huge rewards. For example, according to analysis of Bloomberg data by Axa, anyone who invested in the FTSE All Share Index after the dot.com bubble burst would have seen a 74 per cent return over five years. Those who invested after the stock market crash in 1987 would have seen a 57 per cent gain in five years. Going further back, after the oil crisis of the mid-70s, investors would have seen returns of 240 per cent over five years.

The prospects of pocketing such profits are tantalising, but anyone succumbing to the temptation to invest now could be cursing their actions if markets do slump again. Rather than piling into the shares or sectors that have already been successful, it may be wiser to research the market more thoroughly to find areas that are less likely to collapse, even if there is another slump.

For instance, anyone just looking at the figures could be tempted by shares in TV company ITV. Back in March the shares fell to 17p. Since then they've been on a very strong run and this week climbed to around the 44p mark, despite results which revealed considerable losses. As one analyst says, they are a "death or glory recovery play". In other words, the profits could be great, but the losses could be catastrophic.

A much safer approach is to pick a unit trust or investment trust that invests in a wide variety of shares or other investment. It can be a way to spread the risk and lessen the impact of any future decline.

"I don't believe it's too late to get in on the stock market rise, but I expect there to be plenty of volatility ahead," says Ben Yearsley of investment experts Hargreaves Lansdown. He favours defensively-positioned opportunities. "I'm topping up my holdings in funds that haven't really moved, such as Neil Woodford's Invesco Perpetual Income or High Income funds and others that are more defensively positioned, such as the First State Global Listed Infrastructure fund. If there is a pullback in valuations, I would expect these type of funds to do well."

Brian Dennehy, of advisers Dennehy, Weller & Co, is even more cautious. "Our technical indicators suggest the rising trend in the Footsie is a trend that is getting a bit tired, and fundamentals don't look screamingly cheap." He warns that there may be a pull back in the markets soon. "We could see a pull back all the way to 4,100, before the assault on 5,000 begins – and then we get nervous all over again!"

He advises sticking with corporate bond funds that have been outperforming the markets since March. "I'd also drip some money into India where the trend is also extended – but liquidity can extend trends much further than you expect in these high risk/high reward markets."

Martin Bamford, of financial planners Informed Choice, believes investing in the stock market should be a long-term decision rather than trying to make short-term profits. "We rarely encourage investors to try and time the markets, but we might see some profit-taking over the next few weeks which could present a good buying opportunity. But the only real answer for any investor who feels they have missed out on the best of the stock market recovery is to invest now and stay invested," he says.

Anyone wanting to expose themselves to the potential gains – or losses – that the stock market currently offers should drip-feed their cash in, advises Adrian Lowcock, senior investment adviser at Bestinvest. "Investors should not get sucked into the rally, as markets appear to have got ahead of themselves," he says. "However, equities do represent fair value at present and, while markets may not go back to the lows of March, there is a lot of good news priced in that even a small amount of bad news could see some profit-taking. Investors should drip-feed money in and if markets head back down treat these as buying opportunities."

He points out that the recent stage of the rally has occurred on the back of economic data which looks good because it is being compared to data from six to nine months ago when activity was at its lowest. "However, we are not seeing things go back to levels prior to the recession. For the recovery to gain that sort of momentum, at some point the consumer will need to respond with increased demand. This looks less likely to happen with unemployment still rising and the benefits of low interest rates not being passed on to the consumer," Lowcock warns. "That said there is still a lot of money sitting in cash waiting to be invested, which could cause the rally to gain further momentum."

Getting the timing right when investing in markets is impossible but that may not be that important, says Mike Kellard, chief executive officer of AXA Winterthur Wealth Management. "Time in the market is nearly always better than timing the market. People should consider their attitude to investment risk, and explore many of the investment opportunities available. There are alternatives to the extremes of cash and equities, which offer some cautious exposure to the markets over the short to medium term. Before proceeding, however, independent financial advice is always a good idea."

s.read@independent.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Voices
Ukip leader Nigel Farage arrives at the Rochester by-election count
voicesIs it any wonder that Thornberry, Miliband, and Cameron have no idea about ordinary everyday life?
Sport
sportComment: Win or lose Hamilton represents the best of Britain
Life and Style
tech
Sport
Arsene Wenger reacts during Arsenal's 2-1 defeat to Swansea
footballMan United and Arsenal meet on Saturday with both clubs this time languishing outside the top four
News
i100BBC political editor Nick Robinson had a lot of explaining to do
Life and Style
Nappies could have advice on them to encourage mothers and fathers to talk to their babies more often
newsTalking to babies can improve their language and vocabulary skills
Sport
Tony Bellew holds two inflatable plastic sheep at the weigh-in for his rematch with Nathan Cleverly
boxingGrudge match takes place on Saturday night
Arts and Entertainment
Mark Ronson at PS1
arts + ents
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

    Reach Volunteering: Charity Treasurer

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    US immigration: President Obama ready to press ahead with long-promised plan to overhaul 'broken system' - but will it get past a Republican-controlled Congress?

    Immigration: Obama's final frontier

    The President is ready to press ahead with the long-promised plan to overhaul America's 'broken system' - but will it get past a Republican-controlled Congress?
    Bill Cosby rape allegations explained: Why are these allegations coming out now? Why didn’t these women come forward earlier? And why has nobody taken legal action?

    Bill Cosby rape allegations explained

    Why are these allegations coming out now? Why has nobody taken legal action? And what happens next for the man once thought of as 'America's Dad'
    Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain

    You know that headache you’ve got?

    Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain
    Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?

    Scoot commute

    Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?
    Paul Robeson: The story of how an American icon was driven to death to be told in film

    The Paul Robeson story

    How an American icon was driven to death to be told in film
    10 best satellite navigation systems

    Never get lost again: 10 best satellite navigation systems

    Keep your vehicle going in the right direction with a clever device
    Paul Scholes column: England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil

    Paul Scholes column

    England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil
    Michael Dawson: I’ll thank Spurs after we win says defender as he prepares to return with Hull

    Michael Dawson: I’ll thank Spurs after we win

    Hull defender faces his struggling former club on Sunday ready to show what they are missing. But he says he will always be grateful to Tottenham
    Frank Warren column: Dr Wu has big plans for the professionals yet he should stick to the amateur game

    Frank Warren column

    Dr Wu has big plans for the professionals yet he should stick to the amateur game
    Synagogue attack: Fear unites both sides of Jerusalem as minister warns restoring quiet could take 'months'

    Terror unites Jerusalem after synagogue attack

    Rising violence and increased police patrols have left residents of all faiths looking over their shoulders
    Medecins sans Frontieres: The Ebola crisis has them in the headlines, but their work goes far beyond West Africa

    'How do you carry on? You have to...'

    The Ebola crisis has Medecins sans Frontieres in the headlines, but their work goes far beyond West Africa
    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Residents in what was Iraq’s safest city fear an increase in jihadist attacks, reports Patrick Cockburn
    Underwater photography competition winners 2014 - in pictures

    'Mysterious and inviting' shot of diver wins photography competition

    Stunning image of cenote in Mexico takes top prize
    Sir John Major: Negative West End portrayals of politicians put people off voting

    Sir John Major hits out at theatres

    Negative West End portrayals of politicians put people off voting
    Kicking Barbie's butt: How the growth of 3D printing enabled me to make an army of custom-made figurines

    Kicking Barbie's butt

    How the growth of 3D printing enabled toy-designer to make an army of custom-made figurines