You Talk - common investor questions answered

When’s the right time to get out of cash and invest back in the sharemarket?

Kajanga Kulatunga, MLC Investment Analyst, replies:

Sharemarkets around the world have nearly doubled from the lows of March 2009, yet investors seem cautious, piling money into term deposits and other less volatile assets. This is understandable for those who felt the pain of falling markets during the latest correction, and others who’ve been bombarded with scary headlines from the media.

The world too has been an unpredictable place; with ongoing financial troubles in Europe and unrest in the Middle East planting further doubts in the minds of investors.

What feels good however may not be what helps you achieve your goals.

History has shown that the best time to reap rewards from investment markets are after they’ve been beaten down. Markets are currently fairly valued across many countries, offering potential long-term sharemarket returns, not to mention very attractive dividends which grow with the success of companies.

It’s been ages since equity values nearly doubled and investors didn't give a darn. In early 1948—nearly two decades after the Crash of 1929—the U.S. Federal Reserve surveyed 3,500 investors nationwide about their attitudes toward shares. Only 5% were willing to invest in shares, and 62% were opposed. Asked why, 26% said shares were ‘not safe’ or ‘a gamble’. Just 4% felt that shares offered a ‘satisfactory’ return.

These investors would come to regret one of the greatest advances in US shares in the following years. The market boomed in the late 1940s and early 1950s without many investors. Only in the mid-1950s, as one of the biggest bull markets in history roared ahead, did individuals return to shares in earnest.

By then, they were roughly twice as expensive as they’d been when individual investors told the Federal Reserve they were a ‘gamble’.

Investors may not yet feel we are over the latest market corrections, which inevitably come our way during an investment lifetime.

But markets have emphatically said otherwise. Now may, in fact, be the right time to speak to your adviser about the appropriateness of your current strategy to achieve your financial goals.