How can you choose the right time to invest in the share market?

In the voice of Mr Miyagi from Karate Kid: “Aaah, editor sage like Buddha! One question asked. Two questions posed.”

The first question: “How do you time the share market?” The second: “How do I know when I should invest in the share market?”

Can mere mortal investors time the market? Not consistently over years and decades, in my opinion. Many claim they can time the market. And some investors will outperform. Some will be due to skill. For others, it will be luck.

But for every person/fund manager that outperforms the market, there is, by definition, someone who underperforms.

The skill is to minimise underperformance. That’s best done by investing on a regular basis – every month if possible. You’ll get some assets undervalued, you’ll overpay on other occasions. But consistent purchasing – just like your super fund – will minimise the risk of getting your timing badly wrong.

The second question is really important for Generation Xers, particularly those with mortgages.

I have a saying: “Manage your mortgage, then manage your wealth.” That means that once your mortgage is under control, you should start an investment program. Your mortgage is under control when it’s no longer causing you monthly financial pain.

The first few years of a mortgage are fairly tough and you often have to cut back spending elsewhere. But usually around year three to five, after you’ve had a few pay rises, it’s stopped stressing you. That’s when you should start to invest.

Then you start investing according to the answer to the first question. But quality assets on a regular basis. And then … “Miyagi have hope for you”.

Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and principal adviser with Castellan Financial Consulting.