Time is the best factor for investment return. The longer the time you have invested your money, the better you can have for your return. Those who aim for big gain in short time will end up like shooting the air.
As a reason we often heard prudent investment advice for long term. Those who expect short term with big return will cultivate a gambling mentality with rare luck and chances of winning. Sub conscious greed and fear will erode away all gain and capital eventually.
Dollar Cost Averaging Strategy
We have also heard the dollar cost averaging investing strategy which will average down all market risk by investing regularly, periodically with a fixed amount of money over a long period of time. This strategy will work well for a guarantee return. Does this really true? Does long term investment guarantee a better return? But what does it really mean to have long term investment?
We have to understand that time factor along does not guarantee good return. The ending or the market exit time of the investment is the key of having good return. For example, if someone has a plan to invest his capital for 10 years and he has started his journey 7 years ago. He will enjoy seeing his investment grew over the past 7 bullish years. The profit looks rosy and fat now. But if global market meet with decadal big bear next year or so, he will see his profit erodes away like a sinking Titanic. When the 10 years of his investment period is up by then where he needs the money to sponsor his child education, he will discover that all his 10 years investment resulted in a big loss. Therefore, in order to take attractive profit home, all long term investment must aim to end at the bull market, instead of hitting the big bear bottom.
As we all know that we are now in the peak of the market cycle, a mature stage of the old Bull Run for the past 10 years, top brush of global economic like the IMF is predicting that global economic is going to slow down by next year. This is especially more definitely so if the two largest global economies cannot settle their trade dispute this week end.
If anyone is talking about starting long term investment using lump sum capital now will be looking for suicidal mission. For those who have invested already for long term by now, it is possibly the best time to end our investment before market confirms bearish in the next few months.
Whereas for those who are using dollar cost strategy already for a long time could best possibly do something for your portfolio before market goes down. While you let the regular saving plan to continue, consider parking two third or 3 quarters of your already enlarged capital in bond fund or Money Market Fund. When the big bear market bottoms, you can switch back into the same fund again. In this way, you can help lower down your average purchase price and allow your investment to rise faster and more efficient later on. We have to understand that dollar cost averaging strategy would have its best effective measure at the beginning stage but not at the ending stage if we have entered into a bear market.
Long Term Investment at the Right Moment
For new investors, I was advising them to test the market and learn the skill of monitoring your portfolio using small capital in the past. But now, it seems the best is to stay at sideline and accumulate your capital waiting for the best moment to start your long term investment journey. The best moment will be at the bottom of the decadal big bear market. There after the decadal economic recession where everyone is negative about the future of the financial world, we can start to talk about long term investment.
Keep watch on how market turns itself in the next few months!
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The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions. This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to conclude individual decision.