When is the right time to invest?

Many beginning investors wonder when is the right time to invest. You may wonder is it good to jump in when the market is down, wait for it to go up, or just take your chances? It's not surprising that first-time investors often worry about the timing of their initial stock purchases, because getting started at the wrong point in the market's ups and downs can leave you staring at big losses right at the start. The good news is that whenever you first invest, time is on your side. This is because over the long haul, the compounding returns of a well-chosen investment will add up nicely, whatever the market happens to be doing when you buy your first shares. The bottom line-investing and time are closely related. However, if you are still worried about choosing the right time to invest, here are some guidelines to get you started-

• Don't waste time worry-Financial experts advise that rather than worrying about when you should make that first stock purchase, instead you should think about how long you are planning to keep money in the market. This is important since different investments offer varying degrees of risk and return, and each is best suited for a different investing time frame. This means that if you are looking for significant short-term gains you will have to choose a different investing vehicle, then someone who is looking for longer retirement investment, and is willing to wait several years to access their profits.
• Clearly determine when you need the money-The reality is that successful investing most often takes time. Financial experts use the rule that the longer you have to amass your cash, the greater risk you can accept, since you will have more time to wait out periods of bad returns. However, if you are going to need the money within the next five years, you will want to avoid individual stocks and stock-centric mutual funds. If you need the money within the next three years, you should also avoid bond mutual funds and real estate investment trusts, which can drop dramatically if interest rates increase. Because of the multitude of options, it becomes crucial to have a fixed time period in mind, before choosing your next investment purchase.
• Know when to sell-Equally important as knowing when to purchase, is knowing when to sell your investment. Keep in mind that since bonds essentially sell themselves when they mature, this question primarily applies to stocks or stock mutual funds. Some investors fall into the trap of believing that they can "time" the market, or other words accurately predict when it will rise and fall.Unfortunately, if investing were that easy, there would be a lot more investing millionaires running around. Most financial experts agree that with a few exceptions, an accurate system for timing the market remains an investor's pipe dream. This is especially true for mutual fund investors, who may be quick to withdraw their cash when returns turn sour.

It is important to note that several studies have proven that investors who jump from one fund to the next, chasing performance, tend to do vastly worse than those who stay put. You should be prepared to stick with a fund through good times and bad, with one exception. The exception to this rule being if you feel that your money market fund is being poorly managed that may justify moving on to something else. Selling stocks can present a more complicated set of questions. There are basically two major warning signs may suggest that it's a good time to sell. These are-
1. The business's fundamentals change. You must ask yourself- Is a new competitor rendering its basic products obsolete? Is the company branching out into areas wildly unrelated to its core competencies, leaving you no longer able to understand the business?
2. The stock becomes overvalued.This often happens when the market has bid the company's shares up to unsupportable heights. If the stock is likely to crash on the slightest bad news and the risk of such a tumble outweighs any tax hit you would take by selling now, it might be the right time to let it go.