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When is the Right Time to Invest?

Posted on August 5th, 2007 in Malaysia Investment, Malaysia Personal Finance, Malaysia Retirement |

Yes, and I get people asking me that all the time. If you are reading this, you’d probably asked someone that very same question- “Is now a good time to go into the market?”

Well, to answer that, I usually have a handy chart that shows 3 investor- one is a high school kid, another one is college fresh graduate and a senior position manager. Three of them invest the same amount of money each year, with the high school boy investing for the first 3 years, while our fresh grad invest for 10 years and our senior manager, only realizing the importance of retirement decided to invest for the next 20 years.

And in this scenario, let’s just assume all 3 of them retired at the same age- 60 years old. Let’s look at the chart below:

investment-regular-long-term.gif

Besides appreciating the impact of compound interest can have on your money, the point I would like to illustrate here is that it really doesn’t matter how the market is doing today, or tomorrow or next week, but it’s how LONG you can keep the money in the game that matters most.

Another question most commonly asked is- “Should I invest one lump sum or should I spread the money into a few phases?”

Again, in the long term view of things and backed by historical data, lump sum investment is the way to go. As you can see from the chart below, the Fresh Grad managed to out-beat the high school kid if he’d invested the $30K, instead of spreading the $30K into a 10 year period. However, sadly for our senior manager who only thought about investing much later in his life couldn’t do anything to out perform the other two (unless of course he struck the jackpot in the casino).

investment-lump-sum-long-term.gif

Of course, if you don’t have “lump sum”, a regular investment is still better than nothing!

Scott Burns sums it up best when he gave the following example:

One of the best exercises to demonstrate this was done years ago by the American Funds group. They told the story of two investors. One had an uncanny knack for selecting the best day of the year to invest – the day prices were lowest. The other had an uncanny knack for selecting the worst day of the year to invest – he unerringly invested at market tops.

At the end of a 10- or 15-year period of annual investments, there is very little difference between the two investors. What is important is that they have invested over a long period of time.

Any future investments you make will work to diminish the impact of having picked a bad day.

So if somebody ask you when is a good time to invest, the answer should be pretty simple- right now, lump sum!

And hopefully with this short explanation, I can reduce the number of this question by 10%… and you can help me do that too!





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  • Mr. Bear
    I rather phase it out. Aimed for undervalued markets or post divident. The chart above is somewhat bias. The kid seems to not invest anymore after awhile, why?

    But for sure, if u have other venture that makes over 10%p.a. you seriously can rethink your position.
  • Because the idea of the chart is to illustrate how staying in the game for a longer period of time (even without investing further) is important in accumulating wealth, as opposed to late-comers who cannot afford to take higher risk and having much lesser time to let the compounding interest work. Hence we are looking at a rather rigid example, not something you can easily find in a real-life situation. This figures are mainly used for the simplicity and to illustrate the points mentioned.

    Again, for the sake of this discussion, the risk/return applied here is restricted to fund investment only and not into other ventures such as starting up your own firms/businesses, since the risk factors and rewards are totally different.
  • I think Yow Chuan had done a great job here illustrating the investment mindset. Nobody can time the market.

    Maximise what we have now - just invest with all the money you can afford.
  • There are many techniques used by the fund experts to beat the index, and of course each techniques has got its own pros and cons.

    But one thing has proven to be true again and again, that the longer you have your money in the game, the bigger it will snowball.
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