Ivan has R200 000 to invest and wants to know if he should invest now or wait until the markets come off. Navisha wants to invest in unit trusts, “should I start immediately irrespective of where the economy is in terms of recession or recovery?”
Maya replies: Life would be easier if we had a crystal ball! If anyone knew what the market would do over the next year they would be millionaires many times over.
However going back to the fundamental principle of investing is a good starting place.
I recently had a conversation with Peter Brooke, a fund manager at OMIGSA, who made a good point. He says ask yourself these two questions:
- Are equities [the stock market] the right investment for my financial strategy?
- Is the price right?
He argues that once you have made the decision to invest in equities because it is the right investment strategy for you, then as long as you are buying at a reasonable price, over five to 10 years you will have decent returns, irrespective of whether the market falls or not in the short-term.
No one knows whether the market will pull back — the market views are very divergent on this, but the market is not expensive — it isn’t cheap either but rather what investment experts call “fair value”.
I would add some additional questions:
- If I put all my money in the market today and it fell 10% within the next six months would I be OK with that?
- If I phased the money in over six months and the market kept going up would I be OK with that?
- If I waited and the market was 5% higher in six months’ time would I then invest?
Asking yourself these questions should give you some guidance as to your personal risk tolerance rather than trying to guess the market.
If you are not prepared to take any short-term losses than perhaps the market is not the right investment for you in the first place, or at least you may not fully understand the inherent risks involved.
It is fine to phase in if it makes you feel more comfortable as long as you understand that you may miss potential returns.
If you keep waiting and the markets go up, you may sit in cash for a long time.
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