Is now the time to invest in equities again?
Published 13/04/2010 | 05:00
Q: THE turmoil in the markets lead me to put all my money on deposit 13 months ago. But I have heard some speculation investors are returning to the market and now might be an opportune time to look at investing in equities. Can you advise?
A: Is now a good time to invest in equities is probably the question I get asked most often.
Probably one of the greatest lies peddled by the investment community in relation to equities is that "it's time in the markets, not timing" that counts.
This is patently untrue. Timing is important; alas almost impossible to get right.
The return from equities (long term) is heavily influenced by the price at which you buy them. Today's price (for US equities) is the wrong side of fair value using a cyclically adjusted P/E (price/earnings) ratio as the metric. The P/E ratio is equal to a share's market capitalisation divided by its after-tax earnings over a year's period.
The low-hanging fruit has been plucked and you are in danger of committing that most grave of investor sins, selling low (13 months ago) and buying high. I don't know where markets are going in the next six months as momentum rules stock prices in the short term. Fundamentals win out over the long term. If you are adequately diversified, you shouldn't be that concerned about the timing issue.
Find a decent global equity value fund and build your position slowly, committing some money now and keeping some powder dry if markets pull back.
Decide on an appropriate level of equities to hold in your portfolio and don't try to tactically call markets as you have done in the last couple of years.
Though I said timing markets is next to impossible, you can enjoy the spoils of it if you regularly rebalance your portfolio to the strategic parameters you decide at the outset.
Gary Connolly, head of investments, Capital Financial Planning Ltd.