Saturday, 8 March 2014

Is now the right time to invest?

In the recent months, with US indexes hitting new highs and strong rebound after each correction, many people have been asking this question, whether is now the time to invest. All of us knows that and have heard many times from financial experts/advisor who will tell you that, any time is a good time to invest, for long term. Yes, they always tell you long term, but you will be back to square one and I will explain later using a chart below.

Looking at the S&P500 chart below, if history is of any (good) guide, assuming at the advice of the financial experts you bought the index in 2000 because he/she advised you to ride the strong uptrend market, dont try to time the market and hold for long term. Unfortunately, this is immediately followed by a correction of about 40%, and only 7 years later, in 2007, then you probably break even. This is also assuming that you had not bought after the market has corrected after 2000 (some call it dollar cost averaging), and this will be true to majority of retail investors(you and me), who will stay out of the market especially when what you had bought has corrected 40%.

Fast forward to today (2014), looking at the chart below, it seems that we are back in the similar situation like in 2000 and 2007. So is it the right time to invest now?

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