Timing your entry to the stockmarket!!!

[ronaldo]

I am considering starting to invest in the stockmarket sometime next year. Based upon my research, I have decided to purchase Eurostoxx 50 ETF's through a stockbroker.

This question is based on the best timing to start investing. Now, I've read that it cannot be timed and that you should just invest when you have the money available but I don't necessarily fully agree with this concept.

Everyone knows that stockmarkets work in cycles. Considering the fact that the Eurostoxx 50 is now at an all-time-high, would it not be reasonable to assume that it will come down a bit sometime soon before continuing on an upward trend?

I guess what I am trying to say is the following:

Let's say I have 5,000 euro to invest, would it not be of potential benefit to me if I waited until the Eurostoxx 50 fell by a nominal percentage, say 10%, from the all-time-high before ploughing my money into it?

I guess this is a very simplistic view and would all depend on whether the Eurostoxx 50 is currently overvalued/undervalued... Does anyone know how you would go about finding this out, i.e. is their anywhere where I can view a combined P/E ratio, dividend yield, dividend cover, etc. for the Eurostoxx 50?

 

[Chamar]

If you're investing in equities you should be prepared to hold them for a long period which should make the timing of your initial investment largely irrelevent. As for the current stock market highs, who knows where they are on the long term cycle? Bears will say they are over-valued and set to fall, bulls will point to the fact that they are only where they were 5 years ago so should increase. Go figure!

 

[hmmm]

I guess this is a very simplistic view and would all depend on whether the Eurostoxx 50 is currently overvalued/undervalued

It is a very simplistic view, and far more intelligent people than you or I have tried to time the market and lost money. A good book to read for an explanation of the problem and why you shouldn't try to second guess the market would be Malkiel's Random Walk down Wall Street.

One strategy that is used to help alleviate some of the timing problem is to use dollar cost averaging.

 

[markowitzman]

One strategy that is used to help alleviate some of the timing problem is to use dollar cost averaging.

Would avoid if possible as there is the opportunity cost of the money sitting on the sidelines not earning anything like the long term return from stockmarket. When I have the money I would invest it all for this reason. As regard all time high, not really a concern for long term investment.

 

[hmmm]

Would avoid if possible as there is the opportunity cost of the money sitting on the sidelines not earning anything like the long term return from stockmarket. When I have the money I would invest it all for this reason. As regard all time high, not really a concern for long term investment.

Yeah if you have a lot of money on the sidelines, dollar cost averaging may hurt your return. On the flipside, you may be putting it all into the market at a peak - what if you had put your entire lumpsum in at top of 2000 bubble, you'd only now be breaking even. If it was me with a big lump sum I'd probably invest it in 12 equal installments over a year, maybe 2 years (obviously fees would be a consideration)

 

[markowitzman]

If it was me with a big lump sum I'd probably invest it in 12 equal installments over a year, maybe 2 years (obviously fees would be a consideration)

Different strokes I suppose. My point in your example is that the money you have not put in during the year would have no potential to make inflation-beating returns.

what if you had put your entire lumpsum in at top of 2000 bubble, you'd only now be breaking even.

True, butover the long term still would be positive. Money out of the market has no potential to grow and bearing in mind it is nigh impossible to time or predict the market I personally would prefer to be in rather than out at all times. In times of investor panic I would be looking to put in more if possible.