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Safe market?

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by Peter Switzer

Calling all nervous Nellies, cautious long-term investors, young and not-so-young people who have never rolled the dice with shares and those thinking of getting into salary sacrifice to turbo charge their super — the worst is behind us. But that doesn’t mean it’s safe, and I underline the word — safe — to get back into the market.

Tonight on my program — SWITZER — on Sky News Business Channel, I am going to grill AMP’s Shane Oliver on whether it’s safe to get into the market now.

All in the timing

History has shown that being in shares is very rewarding over time, but time is the tricky part of investment. That’s why financial advisers like me have had it drilled into us that “it’s not timing the market but time in the market” that’s important.

Frankly, I think there’s a bit of bulldust in that cliché but only a bit. Generally, I agree with it because it’s too hard to time the market, but if you can time it and then spend time in it, then that’s the win-win situation you would love to achieve.

The cycle

Right now, we know the stock market fell about 50 per cent from its high and that we’ve come back around 30 per cent since the lows. To get back to where we were before the crash, we would have to climb 100 per cent. We also know that stock markets eventually pass the old high and advance on until another crash or correction happens.

So between now and the next big slump there’s a good chance, based on history, that shares will be rewarding. Note, they could go sideways for a year or even two but eventually they will rocket up for a few years and that’s when, if you want to play with timing, you could get out of the market and wait for a crash. This isn’t easy to do but some smarties have done it successfully.

Positive is back

The point is that the 30 per cent bounce in the market and the improving economic outlooks around the world, especially here in Australia, plus the better than expected company reports in the USA, are turning one-time very negative economists and commentators into more positive prognosticators.

All up. this makes me feel that the March lows are behind us and while we could see the stock market sell off for a while in August and September, until the next quarter of company results come through, there’s still a lot of money on the sidelines which will come in to buy shares when they fall in price.

Buy in now or wait?

That means if you buy in now, you could see a loss of 10 to 15 per cent, but in a year’s time the market could be up and wipe out those losses. As long as you have a five-year horizon, I think it’s safe to go into the market.

If you wait and there’s a 10 per cent fall and you get in then, well you will make money over five years, but that size fall might not happen. As I said earlier, timing the market isn’t easy.

I am hoping Shane Oliver supports my argument tonight.

For advice you can trust contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Thursday, July 23, 2009