This would have to be one of the most common questions asked every day all over the world.

Some investors try to predict the bottom of the market in an attempt to pay the lowest price and maximise their returns. Others wait for confidence to return before moving into the market which means they spend a lot of time sitting on the side line and when they do eventually buy in, they are paying much higher prices.

Unfortunately, such an approach in investing is flawed as it leads to ‘investor paralysis'. By delaying your investment, you run the risk of not fully participating in the benefits of market recovery when it does eventually occur.

So when is the right time to invest? The answer to this is now and always.

The best way of overcoming ‘investor paralysis' is to invest regularly and the strategy is called dollar cost averaging.

Here's an example:

Let's say you are planning to invest $100,000 into a managed fund which involves the purchase of units and you decide to invest it all in one lump sum.

Table 1. Investing the lump sum

In this example, the investor has purchased 100,000 units which have varied in value over the 5 year period however over time they have been rewarded by an increase in the unit price which is reflected in an overall increase in the value of the investment.

Table 2. Investing a regular amount of $20,000 over a 5 year period

In this example, the investor has a greater investment at the end of the five year period and has fully invested their $100,000 at a lower average price of $0.90.

When you commit to investing a fixed amount into an investment that varies in price, you will purchase more units when the price is low and less units as the price moves upwards again.

It is the same principle when you top up your car each week with petrol. If you buy the same amount of petrol every week then you know through price fluctuations that some weeks you will get more litres and some weeks less.

Working Australians should also be very familiar with the concept of dollar cost averaging as this is exactly what is occurring each and every year through the payment of employer superannuation guarantee contributions. If your employer contributes your SGC in a month when markets are low then you will be allocated more units than in a month when the markets are high.

The concept of dollar cost averaging does not mean that you should never invest a lump sum as this too is a beneficial strategy when markets happen to rise in value over a prolonged period after the initial investment is made.

Rather, it should be viewed as a risk minimising principle suitable for investors who may otherwise be reluctant to establish long term investment portfolio due to fear of short term market uncertainty.

Theresa Chapman is a Certified Financial Planner focussed on helping women improve their financial literacy and achieve financial security. For more information email This e-mail address is being protected from spambots. You need JavaScript enabled to view it or visit www.sppgroup.com