Mutual Funds: When is the Best Time to Invest?

"When is the best time to invest?". It is a question that I hear almost everyday mostly from people who either are investing in mutual funds or are planning to invest in one.

The idea of cost averaging have captivated many people and in fact it has fostered the mindset that "anytime" is the right time to invest. But for me, cost averaging is not enough.

In cost averaging, time is the most important part in investing. The earlier you start, the lesser the risk, and the greater the chances of the returns. However, cost averaging says nothing about entries and exits which in my opinion are very important. Time and timing are actually the keys in making a successful trade and investment if you want to maximize your profits.

Cost averaging is nothing more than speculation. It is no different in depositing in a savings account. Speculation if you ask me is not investing, it is investing blindly. Though it's true that mutual funds offer way better interests/gains than bank deposits, be aware that mutual funds are investments and investments needs investigation, not speculation.

So going back to the question "when is the best time to invest?", my answer is wait until PHISIX hits a low or in a technical lingo, a support. The Philippine Stock Exchange heavily influences financial institutions in the Philippines be it stocks, bonds, and other forms of securities. If the PHISIX (Philippine Stock Market Index) goes down, almost everything goes down as well.

As of this moment, PHISIX is going down and breaking supports. How low will it go, we still don't know. PHISIX have already broken the 4000 support and is heading down to 3800. The bombing incident in Makati, China's reported 3.3% inflation rate, and the turmoil in Egypt are not helping thus we could expect PHISIX to go further down.

In the graph below, the straight line shows the support that PHISIX is resting to as of the moment. It is inclining going down thus it is indeed going down. So is "anytime" the best time to invest? The chart says otherwise. Does it make sense to invest into something that is going down? I don't think so. Wait for it to hit it's lowest and reverse. You want a bargain don't you? A stock at it's cheapest and more volume?

The lines in the two boxes (next graph) is PHISIX's performance for the past two years. Elliot's Wave Theory says that before a major reversal, a stock goes through 5 waves. The boxed data shows that PHISIX have already gone through waves one to four and wave 5 is possibly coming. Is it good news? Yes indeed. Wave 5 is an uptrend but when will it happen? We don't know. The downtrend could continue and a reversal could happen anytime.

The third graph shows PHISIX's performance from 2002 to 2010. As far as the graph is concerned, PHISIX is still on it's long term uptrend on wave 3 meaning that there is still a lot more room to grow. Wave 2 (downtrend) happened during the so called economic crisis. What comes down always comes back up so after the big dip in 2008, that gave a lot of height to climb in the following years. PhilEquity rode PHISIX's wave 1 as well as the steep climb after the economic meltdown. It's NAVPS grew from barely a peso in 1995 to about P20 in 2010, roughly 2000% increase in 15 years.

Knowing the market behavior is essential in investing. It eliminates false hopes that the market is going up and much more, take away the idea that mutual funds are some sort of magic wand that could give instant riches long term. Knowing that PHISIX is bound to reach greater heights in the years to come is not much of our concern as of the moment. What we should know is when to time our entry to have a good chance of gaining more. Never trade/invest against the trend, you can never outsmart the market.