Here is what readers should know about is now a good time to start investing in the wealth-building stock market?, in plain language. The wider context, the practical takeaway, and the parts that matter most for everyday decisions.
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There’s a stock market saying that goes something like: “When your taxi driver starts giving out stock tips, the market top is near.”
Some even call this the ‘Taxi Driver Indicator’, an updated version of the ‘Shoeshine Boy Indicator’ (you obviously don’t see shoeshine boys about nowadays). In future, if robotaxis make taxi drivers redundant, it will probably become the ‘Barber Indicator’ or something.
Anyway, the contrarian investing wisdom is the same. When people who typically have no deep interest in the market start dishing out stock tips, it suggests that there might be a lot of hype around.
Therefore, it might not be the best time to pile in, even though the stock market is a proven wealth-building machine over the long term.
But doesn’t it equally work the other way? I mean, right now there’s a lot of fear about the Middle East conflict, inflation, higher interest rates, a fragile global economy, sky-high government debt, and even future job losses caused by artificial intelligence.
Despite this scary backdrop, might now actually be a good time to start investing?
Playing it smart
The first thing to note is that uncertainty comes with the territory. It’s just impossible to say for sure where shares will head over the next few weeks or months or what big macroeconomic iceberg is lurking ahead.
Presumably, this is why so many people favour holding just cash. It offers a sense of safety, even if inflation is relentlessly chipping away at the spending power of that cash over time.
To mitigate uncertainty, though, a risk-averse investor could do a few smart things:
- Build a diversified portfolio of high-quality shares, investment trusts, and ETFs.
- Invest regularly to smooth out the natural ups and downs (known as pound-cost averaging).
- Invest in different sectors and geographies.
- Keep position sizes in check (no single stock at, say, more than 15% of the portfolio).
- Hold cash in an emergency fund.
- Think long term.
Europe looks cheap
So, is now a good time to start investing? I don’t see why not. Because even with the market near an all-time high, not all shares are expensive. This is where valuation considerations come in.
What’s more, not all stock markets are the same. For example, the tech-heavy Nasdaq-100 is still expensive historically speaking, despite falling 10% recently. But the dividend-heavy FTSE 100 appears to offer good value even after performing strongly since 2024.
One ETF that I think is worth considering is iShares Core EURO STOXX 50 ETF (LSE:EUE). It tracks the 50 largest blue chips in the eurozone.
The ETF has fallen 8.2% in recent weeks, as investors worry about the impact of higher energy costs on European consumers and therefore companies. Clearly, this adds some near-term risk.
However, the fund appears to offer solid value, trading at 17 times earnings while offering a 2.6% dividend yield.
Importantly, there’s an attractive level of diversification among those 50 stocks. At the top, there’s tech powerhouse ASML, which is the world’s only company that sells extreme ultraviolet (EUV) lithography machines. These are used to create the most advanced microchips.
In banking, there’s Banco Santander, BNP Paribas, and UniCredit. In luxury, it holds LVMH (Louis Vuitton Moët Hennessy), EssilorLuxottica (owner of Ray-Ban and Oakley), Birkin bag maker Hermès International, and Ferrari.
