Timing share market investments is difficult - and can be expensive
Timing share investments is notoriously difficult. Individual shares and groups of shares - such as stock market indices or mutual funds - can move in unexpected ways from one day to the next. A popular theory among investors is that share prices move in a "random walk". Or, put simply, that the movements of share prices in the past do not necessarily indicate how share prices will move in the future. As such, the markets are highly unpredictable. Studies have shown that, in general, people cannot time their trading in shares in a way that guarantees a profit. A New York Times article last month reported one study (also available via a link on the financeprofessor.com website) that showed people who invest in mutual funds "usually get the direction of the stock market wrong".
Consider why prices are rising or falling
Whether conditions of rising or falling prices are a better time to invest depends on the circumstances of individual shares or specific funds. There is no one rule that holds firm for all. If a share's price has dropped, the eZonomics poll results suggest a large proportion of investors might see it as a good time to buy. However, it can pay to consider why the price has dropped and if those conditions are more likely to worsen, remain or recover.
It pays to time your risks, not your investments
The eZonomics video about timing share market investments argues investors should organise their savings first before considering buying shares. For those who do dive into the market, research suggests it is wise to be prepared to invest for a long time - say, for example, more than five years - and to limit exposure to shares if the investment horizon is short. Diversification is also important, with the selection of the right mix of more risky assets (such as shares and property) and more predictable investments (such as bonds and bank deposits) key.