When is the best time to invest in a falling market?

When is the best time to invest in a falling market?

25 March, 2020

In the midst of the coronavirus pandemic many people are now wondering when is the best time to take advantage of a falling market. From its peak in late Feb the Australian stock market is down by 30% while the U.S stock market is down by 27%. The world has witnessed the quickest drop ever recorded in history.

The purpose of this article is to help investors seize the opportunity presented before them

Q: Sean, when is the best time to start investing in the Share market?

A: Though there is a clear opportunity to buy undervalued stocks at the current moment I still don’t know when the stock market will hit its bottom and if anyone tells you otherwise then they better be retired and living on a yacht worth 1 billion dollars. The truth is, no one has the skill to time the market and the sooner you can accept that fact then the sooner you can make the correct strategic investment decisions moving forward, in this case “dollar cost averaging”.

Q: Ok, so now that I’ve accepted that I don’t have a crystal ball, what is a “dollar cost averaging” strategy and how will it help me minimse losses and increase gains?

Dollar-cost averaging simply means consistently investing a chunk of money at regular intervals over time. If you have $10,000 you’re comfortable investing, add $1,000 to your portfolio every week over a 10 week period, rather than all at once.

Q: How will “dollar cost averaging” help me minimise my existing portfolio losses?

If you invested in a share worth $100 dollars and then purchased the same share when the value dropped to $50 what would be the average cost of each share? The average price would not be $100 but $75 [($100+$50)/2=$75]. Using the dollar cost averaging strategy you reduced a loss of 50% to 25% simply by buying the same stock at different times.

Dollar cost averaging takes the emotion out of investing and spreads your risk over a period of time helping you to maximize

Keep investing at regular intervals and keep contributing the same amount, no matter what the market does. Let dollar-cost averaging do the rest.

Q: When was the last time the market lost 30% of its value and what happen after?

Whilst there may well be worse to come, this week, next week or within the next few months there is an incredible wealth creation opportunity. The last time we saw a minus 30% drop was back in 2008/09. From there to the recent peak we saw more than a +520% return. See below:

Hint 1: The longer you are invested, the longer your money can compound in value and the longer you have to rebound from any downturns.

Hint 2: “Be fearful when others are greedy. Be greedy when
others are fearful.” – Warren Buffet

Living in Singapore? Fill in  the form below to book a complimentary consultation with Senior Expat Financial Advisor Sean Abreu.

Disclaimer – Sean Abreu is a Financial Adviser Representative at IPP
Financial Advisers Pte Ltd. The views expressed here are solely those of
the author in his private capacity. This article has been prepared for
informational purposes only. All forms of investments carry risk, including
risk of losing all the invested amount. Such activities may not be suitable
for everyone. Nothing on this website should be considered financial advice of any kind. Please consult your professional adviser before making any investment decision. Any content on this site relating to tax matters is for general information only, may not be up to date, and should not be considered tax advice of any kind.

By providing the personal information, I give consent to contact me via the email/contact number I have provided for the purpose of conducting financial planning. I am aware that I may withdraw my consent provided by me anytime by submitting the IPPFA PDPA Withdrawal Consent Form to IPPFA by mail or email at pdpa@ippfa.com.

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