Is now the best time to invest in the markets? The answer is never easy

The last-minute registered retirement savings plan contribution season to boost your tax return is over, but that doesn’t mean investors should forget about how to invest their savings until next February.

Is now the best time to invest in the markets? That is still one of the most asked questions over the seven years I have been directly working with clients.

Market timing is such a perennial question because there is no simple rule for it. It is true that if one can precisely invest when the market is strong and stay out or short the market when it is weak, performance should be enhanced. It is also true that there are stretches of time when stock markets have not performed well or been essentially flat.

There are cycles in the markets just as there are cycles in the economy, and the relationship is not one to one, which is the reason why timing the market is so difficult. There is a disconnect between what people hear on the news regarding geopolitical and economic uncertainties and the more sanguine outlook for strong long-term performance in the markets.

This is the reason in investment management we talk about capital allocation between different asset classes such as stocks, bonds and alternatives like real estate, private debt, private infrastructure, etc.

The benefit of diversification is when times are not too sanguine in one asset class, the other ones can supplement. However, the opposite is also true. In periods when stock markets are very strong, the performance of your investment portfolio can be reduced because of diversification.

If someone has a long-term investment time horizon and can remain calm when they see a 20 per cent to 30 per cent drawdown in their investments during a market correction, there are very few asset classes that can come close to what the stock markets can deliver over the long run.

I sit across from very successful individuals and families to have conversations on their investment objectives and financial plans. While people intuitively understand markets tend to recover from a correction and perform well over the long run, many are still very concerned about seeing the value of their investments decline.

There are, however, suitable types of investment for every person, and this is why finding the right capital allocation mix is very important for most individuals and families.