When is the right time to Invest - The Hyperion Effect

This question about when is the right time to invest is probably one that is asked more than any other, however regardless of the state of the markets or the world the answer is always the same…….it’s always the right time to invest!

Trying to time the market is a fools errand as no one can accurately predict what is going to happen tomorrow so how could they possibly know whether it is the right time to invest or not? The funny thing is that the people who got the timing right last time are lauded as being geniuses but are almost always quickly discarded when they get the next call wrong, proving that they were just lucky not skilled. We also choose to ignore all the people who made a call and got it wrong. That is if you looked at the universe of people trying to predict the right time to invest and then compared this to those that actually got it right you would find that the actual success rate  is appallingly low and is attributable to luck not skill.

In an annual study by  research firm DALBAR, they found that the average investor in equity funds in the U.S.has averaged only 4.3% per year over a 20-year period compared to the S&P500 averaged of 11.8%. Most of this difference was attributed to unsuccessful attempts at timing the market. Consider also the chart below which shows the effect of returns over just a 9 month period from getting the timing wrong.

If you missed the best 30 days your return plummeted from over 50% to a loss of almost 20%.

So if you don’t know when the right time to invest is, and the “experts” rely on luck, when is the right time to invest?

Investing is about a long term commitment to the establishment of a strategy to build wealth. Therefore whether you invest today, tomorrow or next week should be irrelevant if you have along term time frame. If you are concerned about the state of markets you can employ a dollar cost averaging program over a period of time (generally 6 to 12 months) to help smooth some of the short term bumps and make you feel more comfortable.

If you do have a short term timeframe then what you are actually doing is speculating and not investing, and as i often like to say……..Good Luck with That! 

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