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Monday, December 31, 2012

“Is it a good time to invest?”

Someone asked me whether it is a good time to invest in unit trust funds given the current market condition.
First of all, the stock market is volatile, which means it will always go up and down. I mean, has anyone seen a market that continues to stay up for many years?
Secondly when the market is down, it is a good time to buy.
Unfortunately people have the tendency to panic. Once they see the market going down, they sell their funds. And a lot of time they sell at a lost because they sell at the wrong time i.e when they are making losses.
Ideally the best time to buy is when the market is really down and sell when the market is high up.  But who can accurately tell when the market is at its down low or at its all time high, before the situations take place?
Unit trust investment is about buying units (hence the name unit trust). When you buy at a lower price you get a lot more units (compared to buying at a high price per unit). And if you sell when the market is up you get a lot more profit.
One way to invest around the volatility of the stock market is to practice the “dollar cost averaging”.
What it means is to top up your investment or in other words buy regularly. The ideal situation is off course to buy every month. In EPF’s case, its members are allowed to withdraw every three month to top up their investments.
When the market is down and you have the financial resources, take advantage ot it! Buy more units as you will get more for less. Look at it this way, when the market is down the price per unit for most funds are low too. Think Mega sale!
And once you’ve reached your target, sell. And sell when the market is doing well.

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