Investors urged with caution as shares skyrocket
RECORD highs for the share market have fuelled dreams of fresh riches among existing and would-be investors, but they are being urged to be cautious.
Aussie shares have climbed more than 5 per cent in the first two weeks of January, which is more growth than some forecasters had predicted for the entire year.
But diving in now could be dangerous, and nobody knows for sure whether markets have climbed too far, when they might fall, and exactly what investors should do.
CMC Markets chief market strategist Michael McCarthy said reasons for the latest strength included ultra-low interest rates globally and yesterday's "peace settlement" between the US and China over trade.
"Every indicator is we're in an uptrend, and uptrends persist until they stop," he said.
"Investors would be smart to show some caution - I don't think it's time to panic into the market."
Mr McCarthy said the emotions of fear and greed were always present in share investing.
He said having a plan was the key to long-term success and people with a low tolerance to risk should not be buying in now.
"Being successful in shares is largely driven by buying well, and scrambling after significant rises can lead to problems for investors," Mr McCarthy said.
Advisers agree that the best time to buy shares is not when markets are booming but when they have fallen and can be snapped up at discount prices.
A good strategy for first-time investors can be to enter the market in waves: buying some now, then waiting a few months to buy more, and so on. This reduces the risk of splurging on shares just before a sharp downturn.
Chris Conway, a portfolio manager at investment newsletter Marcus Today, said it was normal to feel nervous when markets hit record highs but he suggested investors "make hay while the sun shines".
"The disservice you can do yourself is selling too soon and missing out on what could be further gains," he said.
"I don't subscribe to the view that just because the market's been going up it has to fall soon."
Mr Conway said upcoming profit reporting seasons in Australia and overseas would show whether share prices were overinflated compared with company earnings.
"If the earnings don't support the price, the market can do only one thing and that's come back," he said.
Mr Conway said investors should have a strategy to reduce their risk if shares fell and commit to it.
Brokers and online trading platforms can lock in automatic sell orders if a company's share price drops below a certain level.
"Many people um and aah if it falls, and all of a sudden the market's down 20 per cent and they've done nothing," Mr Conway said.
Midsec adviser David Middleton said "it could keep going up" but warned that previous sharemarket crashes - such as 1987 - had followed sharp gains.
"Sell into strength so you have got funds available to buy into weakness," he said.