The Perfect Time To Invest
Written by Kate McCallum, Multiforte
Share prices around the world rallied sharply in the third quarter, with international shares (MSCI World ex Australia) achieving a 13.6% return for the year to 30 September, US shares (S&P500) delivering 21.7%, and Australian shares (S&P/ASX200) returning 14.8%.
So, how do you feel now?
Anxiety about the equity market is understandable. Particularly when we are confronted with a steady stream of discouraging news - a feeble economic recovery, staggering government debt, Eurozone bailouts, slower growth in China and an end to the mining and resources boom.
However, if we wait for the "perfect" time to invest, the risk is we never will.
The problem is that fear and uncertainty can never be eliminated. Those feelings are the emotional manifestation of risk - and that is the price we pay for the returns we are seeking.
The way to deal with these feelings is firstly to recognise them as legitimate and in so doing bring them back down to size. Fear tends to loom larger when we don't confront it. It's okay to feel anxious, but not to the point where it stops us ever doing anything.
Secondly, we should think back to the best experiences in our lives and reflect on how often they involved taking a risk - whether it was changing careers, entering into a new relationship or moving cities or countries. If we waited for everything to be perfect, we might not ever have got around to doing those things.
Thirdly, we might like to reflect that while there is a potential cost in taking the plunge into shares, our flight to safety also comes at a cost. What is the real cost to you of migrating to cash or retreating from good financial advice?
Finally, it is worth considering how quickly conditions can change while we are waiting for our anxiety to subside. Consider this: amid all the recent turmoil, 22 prominent US firms including household names like Johnson & Johnson, Hershey and Wal-Mart have hit at least 52-week highs.
And this isn't just a US phenomenon. In the UK market, shares recently hitting 52-week highs or more include food retailer Sainsbury, hotel and restaurant group Whitbread and aerospace company Rolls Royce. In Australia, the pattern is repeated with many companies including Commonwealth Bank, Telstra, CSL, Tatts Group and News Corp.
We don't know which stocks will be the next ones to push to new highs. But we do know that those people sitting on the sidelines in cash risk going home without sharing in the returns enjoyed by others. Who would you rather be like: Fred or Barney?
The perfect time to invest is now
The takeaway message is that there never is a perfect time to invest. If there were, we would have to redefine the notion of risk.
Uncertainty is the price we pay for the returns we are seeking. We deal with that uncertainty by understanding the risks we are taking, diversifying broadly and being mindful of the factors within our own control - like our own behaviour.
So sometimes, you just have to close your eyes and take the plunge.
