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Wednesday, March 20, 2013

Is now the right time for Australians to invest?

Many Australians are wondering whether right now is a “good” time to invest. I know this because suddenly my friends and family care about my opinion! What’s happening here is largely psychological. You see we all know that the best time to buy is while the market is down, but when we actually make a decision to invest it can be hard to resonate logic with emotion when we’re seeing negative numbers. So when we see positive numbers after a sustained period of under-performance we think – oooooh, things were bad, now they’re looking good, should I jump in quickly before I miss the boat? It’s simply human nature to react this way.

Investing is a long-term commitment and you should expect to experience a number of different market cycles during your investment term. A sensible time-frame underpinned by a diversified portfolio of quality investments should perform to expectation over the long-term, regardless of the “ups and downs” in between (thankfully a GFC should only be a 1 in 50 year event!!). So it’s really about “time-in” the market rather than “timing” the market.

That said, if the market is clearly undervalued then yes it presents a pretty terrific opportunity.

BUT, there’s a key difference between companies or even countries that are struggling, and those that are under-valued. Just because the price is low doesn’t automatically make it a sensible investment – it might be a dog. The basic fundamentals need to be strong to be well-placed for recovery.

If a company or country is struggling because of poor management, high debt levels, inefficiencies etc, then you probably want to steer clear. If it’s a case of the market simply not recognising their value because of the current environment then, it may be worth a good look for future performance potential.

When it comes to the overall Australian sharemarket at the moment it’s neither cheap nor expensive, and any time is a good time to invest if you have the right time-frame. But of course if you happen to be in a position to invest when the market is low, then it’s a particularly good time. So if you’re looking to do some “contrarian investing” (ie. buy low, sell high) while the market is still in recovery mode, just make sure you know why the price is low when making your investment decisions.

Talk soon,

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