Inside track: Before you take a punt on the markets...
The markets are on a good run. In fact, the markets are on a great run. If we take the S&P 500 as a benchmark, it has had six positive calendar years in a row. This has not happened in recent history. The markets will start to fall.
I am not looking into a crystal ball here and suggesting that I know something that is going to make the markets fall; all I am stating is that the markets will always average out. The markets always go too far one way or the other, they exaggerate everything and then they have to correct.
People in Ireland have in the region of €93bn on deposit. If you are one of them and you are disappointed with the deposit rates on offer and you were thinking of investing in the markets right now, consider these points first.
Don't try to time the markets
If you think you can outsmart the market by waiting for an inevitable correction, then don't bother. There are people out there who get paid to time the market and fail miserably at it.
Understand one thing about timing: you will never invest at the bottom unless by absolute pure luck.
Time in, not timing
If you want to have control over the timing of your investment, the most important thing to control is the time you get out, not the time you get in. The longer you can spend in the market the more your risk is diluted.
Know your risk appetite
There are plenty of online tools that will allow you assess your attitude to risk when it comes to investing money and give you a 'risk score'.
This is a great guide to how you should invest your money, but be warned: this is only a guide. It's useless without having gone through a robust investment process that includes testing your capacity for loss and clearly demonstrating to you how any particular investment is likely to perform in different market conditions.
Drip feed your investment
If you are ready to take the plunge and you are worried about markets falling apart, a mechanism I would often use for anxious clients would be to drip-feed their investments. This involves your investment moving from safe assets into more risky assets on a phased basis.
I often invest 50pc of the investment from the outset with a further 5pc per month being fed from a cash account into the investment.
This will mean that if the markets do fall, the client continues to buy on the downward trend. The opposite, of course, is still the case if the markets go up; they would have been better off fully investing from the start.
It's rare for all asset classes to fall at the same time. So, for example, when shares drop, assets like commodities tend to rise. By ensuring your portfolio is well diversified, you will be able to smooth out your investment returns in most market conditions.
Be sure that when your investment is up and running that you have a well-structured rebalancing mechanism. This means that when certain asset classes do well, such as shares, some of the profit is taken off the table to buy assets that are performing poorly.
The best time to invest in the markets is when you have the money, while the best time to take your money out is when you need it. The longer the time period between these two, the better. If you are considering investing in the markets, proceed with caution - but proceed.
The market has expected a correction for two years now, the S&P 500 is up over 50pc since, so don't wait. If you are already invested, now is the time to have a look at how your money is invested.
Eoin McGee is principal at Prosperous Financial Planning
Sunday Indo Business