Nobody likes to watch their investments fall in value – especially not after they've just bought them!
Right now, the market is so volatile that investors don't know what to think, and many are choosing to remain on the sidelines just in case the market has further to fall.
Timing the market is a mug's game
Back in March 2009, investors were scared witless of the share market.
It had more than halved in value in 18 short months, with many investors locking in enormous losses simply to avoid further pain. The S&P/ASX 200 (ASX: XJO) subsequently rose 63% in the 13 months that followed, costing those who chose to remain on the sidelines an enormous opportunity.
The same could be said about the sharemarket crash of 2011 (perhaps you don't even remember that crash anymore…).
The market dived more than 20% as investors feared another GFC-like decline.
The market's fall lasted about five months with the ASX 200 climbing 30% in the time since – even despite its most recent setback.
Too many people focus all their efforts on making share purchases at exactly the right time.
What if the shares fall tomorrow?
What if the market isn't finished acting irrationally?
It's these sort of questions that stop investors from making incredible returns on their investments, simply because they're scared of a little short-term volatility.
By and of itself, being hesitant to buy when shares are falling is understandable (although investors such as Warren Buffett would likely tell you otherwise). It becomes more of a problem when investors become hesitant to buy once the market begins to recover.
That's when they miss the big gains. By constantly fearing that the downturn will resume, you'll all but ensure that you're buying at the wrong time. Timing the market is a mug's game.
Buy a little bit
No one said you should go "all in". Heck, in this environment, such a strategy must surely be considered unwise.
Investors with cash to spend could instead look at buying shares gradually. Put some money to work now in some of those companies you've had your eye on for a while. Keep some more in case shares start trading at an even deeper discount.
One way to do this is to commit a certain amount of cash to buying shares on a regular basis – perhaps fortnightly, monthly or even quarterly. That way, you'll constantly be adding to your portfolio without needing to worry about what the market itself is doing.
To be clear, I'm not talking about throwing your money behind any old company.
For instance, I wouldn't be touching the banks right now, nor the miners. Not even BHP Billiton Limited's (ASX: BHP) lucrative 10.2% grossed up dividend yield is enough to tempt me – not with commodity prices expected to continue falling.
But mark my words, there are a number of great companies out there just waiting to be bought. To name just two, I have my eyes on Veda Group Ltd (ASX: VED) and REA Group Limited (ASX: REA) – both of which I think have fantastic futures ahead of them.
Remember this…
Buying shares at the height of a bull market might be when you're most confident, but it's those investors who buy during a bear market that typically produce the best investment returns. As difficult as it can be, now might be the time to consider putting some cash to work…
