Is Now The Right Time To Invest?
By Pinyo • Nov 15th, 2008The DOW is down at 8,000 level from its peak at 14,000 level. The daily ups and downs is so extreme that the index can move over 100 points in just a few minutes. This can make any investor — new or experienced — nervous and doubtful.
- Should I get out of the stock market?
- Should I get back in?, or
- Should I invest in something else entirely?
Recently, Nicole (a reader) asked “I would just like to know if right now is a good time to buy long term investments because the market is low right now?” in my article about pitfalls that you must watch out for when investing in mutual funds.
My answer is very simple, anytime is the right time to invest if you have the right long-term investment strategy in place. Personally, I don’t believe in finding the hottest investment and plow my money into it. Sure you could win big, but you could also win big by gambling or playing lottery too — but you know their returns on investment (or lack thereof).
What’s the investment strategy that makes anytime the right time to invest?
1. Diversification
The decision between picking a handful of the “best” investments and diversification is a personal one. For me, I believe in the latter. I am more comfortable with a diversified investment portfolio than having a handful of potential winners. By having a diversified portfolio with low asset correlation, the chances are different asset classes will rise and fall in value at different rate. This basically lowers the risk of your overall portfolio and smooth out the performance level.
Take a look at my article Everything You Ever Wanted To Know About Asset Allocation for more information about diversification and asset allocation.
2. Regular Contribution
Second is to invest regularly into the investment portfolio. This is easily accomplished with 401k contributions, or you can set up an automatic investment plan for your other accounts. Similar to dollar cost averaging, regular contribution allows you to buy more shares when the prices are high and less when the prices are low.
For example, let’s assume Joe buy $100 of VFINX per month:
| Date | Price | Shares |
|---|---|---|
| January | $127.02 | 0.7873 |
| February | $122.89 | 0.8137 |
| March | $121.75 | 0.8214 |
| April | $127.67 | 0.7833 |
| May | $129.31 | 0.7733 |
| June | $117.83 | 0.8487 |
| July | $116.85 | 0.8558 |
| August | $118.54 | 0.8436 |
| September | $107.37 | 0.9314 |
| October | $89.34 | 1.1193 |
| November | $80.70 | 1.2392 |
The key thing to notice here: Joe is buying more as the price goes down, and less as the price goes up. Here’s a visual illustration:
3. Redistribution
As I mentioned earlier, the pieces within the investment portfolio tend to grow at different rates. This gives you another opportunity to buy low and sell high my rebalancing your portfolio. Specifically, once your asset allocation becomes drastically different from your original allocation, you could rebalance your portfolio. Here’s another illustration:
In the example above, you are cashing out of bonds and other non-equity investments to buy more equity — i.e., large-cap, small-cap, and international.
This is easily accomplished with 401k, but a little trickier in other types of accounts.
I know that this lazy and steady approach to investing is not for everyone, but give it a try. You may find that it works better than you think.
Here are a few more articles from other bloggers:
- Invest As Much As You Can Now, So You Will Have Options Later at Cash Money Life
- How to Profit from a Stock Market Crash at The Dough Roller
- An Expert Weighs In: Is Now The Time To Buy? at All Financial Matters
- 10 Signs Of A Stock Market Bottom at The Digerati Life
All posts by Pinyo
It is ALWAYS the right time to invest. That doesn’t mean it’s always the right time to invest in stocks. As Jim Cramer says, there’s always a bull market somewhere.
Poor Boomer is right. It’s Bull:30 somewhere, always time to get in. I’m still amazed at the people I talk to that want to wait until it “smooths out” then I’ll get back in. I just ask that they be sure to let me know when “that time” is.
Jeff:
Let me guess - when they let you know when “that time” is, it’s your cue to sell?
“It is ALWAYS the right time to invest. That doesn’t mean it’s always the right time to invest in stocks.”
Thus the people really know that whats the right time to invest and if yes then plz let me know
Imagine, if you would, going to the supermarket with your grocery list in hand. “Lets see; I need eggs, milk, cereal, some chop meat for dinner tonight, and some chicken for next week, the baby needs formula, and the twins want ice cream. And of course, we must have fresh vegetables, and fruit, and some more bottled water.” As you enter the supermarket you are startled by a huge ticker type sign that flashes… “Every item is discounted by 75% of its true value until further notice” But then in small writing you see this… “Please be advised that these items were originally selling at 2-3 times their true value. Note - nothing about these items have changed. The ingredients, the expiration dates, etc.,. are all the same. The only difference is that we are now selling at a deep discount due to circumstances beyound our control.”
These discounted prices may be discontinued at anytime.
Would we be asking ourselves…. is now the right time to buy?
“Would we be asking ourselves…. is now the right time to buy?”
Sure I would, especially if the supermarket was trying to sell me with some fabrication called “true value”.
Value is whatever the market will bear. Period.
“Anytime is the right time to invest if you have the right long-term investment strategy in place”. Sure! It isn’t imperative to have the exact time to start a business. Any time when we are ready with plans and strategies. Before investing, we must plan a very careful investment strategy for our own. It’s up to our condition and purposes. The strategy you mentioned is worthy to learn.
I think I can agree with everyone here except for boomer. Your comments mean that I would have to know hot sector before it becomes hot and know when to put in and pull out money. That’s a tall order that not even a seer can manage. May be that’s why you’re a “poor boomer”?