During this time of uncertainty and economic turmoil, many people look for some kind of indication suggesting that they should “get back into the market.”  Truthfully, there are many methods that are often followed.  You can use technical, fundamental, or quantitative indicators.  You can even use market timing or just plain superstition.  Some would argue that these methods may work with varying degrees of success, but the reality – at least, as I see it – is that there is no true full-proof, fail-safe method of determining the best time to “get in the market.”  Truthfully, the decision to invest lays on a much simpler factor: time frame.

How long can you afford to have your money locked into the market without it either being a financial strain, or otherwise compromise the minimum amount of liquidity you should maintain (i.e., emergency fund) or the liquidity needed for a more immediate purpose?  My general advice would be, if you do not need the money you are investing during the more immediate time frame – within 3 or 4 years – you can look into a market-based investment.

Just to be clear, the term “market-based investments” leaves a wide array of options available – with varying degrees of risk.  Once you’ve made the decision to INVEST, there are factors to be considered when determining HOW YOU INVEST.  How you are invested and allocated has the greatest impact on the overall performance of your portfolio.  This will be a discussion for later time, so please hold those thoughts for the moment.  But again, the decision to invest is predicated on the time frame of your investment.

Why? While the stock market is highly unpredictable, over time, it has proven to be cyclical.

Although the economic downturn we experienced in the latter part of ’07, during ’08, and the early part of ’09 is being considered the worst since the great depression, investors have to realize that this was part of a cycle.  Fortunately, it represents a cycle that occurs once every 80-to-100 years.  Based on that, we’ll hopefully never experience any downturn as deep as what we experienced during that period, but no one can promise anything.

Think about it like this: The market is like a tidal wave.  Starting low, it begins to build and build until it reaches its peak, and inevitably crashes.  Most waves grow into are reasonable sizes and occur in somewhat reasonable frequencies.  But like the markets, you can’t predict the size, frequency, and severity of every wave.  And every once in a long while you will experience a deadly wave — Tsunamis.  No one really knows how, when, why, or where these will occur, but we just know in the back of our mind that they will.

For these reasons, methods to help someone identify the “perfect time” to get invest don’t really work.

But knowing markets are cyclical, I will tell you that, generally, for every 4 years of investing you should reasonably expect 3 up years and one down year. For every 10 years of investing, you should expect 7 up years and 3 down years.

Given that information, ask yourself: Am I OK with having my money tied into the market place during a 4-year, 10-year, or even longer period of time, or will I need access to this money sooner?

Although, investments are considered “liquid,” (which means you have quick access to your money), they should be considered “illiquid” because of the fact that if the market is down at a point when you need access to your money, that will not be an ideal time to sell your holdings.

There are many considerations that should me made before diving into the stock market.  These factors should not serve to scare or deter you, but they should serve as a warning and to make sure you have given thought to what you are doing and why you are doing it.  In later discussions, I will go into more detail about what kind of options are out there, e.g., stock, mutual funds, and ETFs, and other factors that should be considered when you invest and how you should invest.

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