bear markets, page-3

Kirstenl,

Without seeing the source for your 15 month average we can't tell you how it was measured. However a bear market is usually measured retrospectively from peak to trough. So if the peak of the sharemarket was in October we have been in a bear market since then.

Having said that I would caution against using that statistic as a guide for investing. Most people try to use the 15 month figure as a guide as to when would be a good time to start buying again.

Some bear markets are 12 months, some are 13, 14, 15, 30 months. The average is just the average and a poor indicator of when the bottom of the cycle will be. No one knows when that bottom will come or how low the bottom will be.

It is true that a bear market is the best time to be putting money into the market as that is when stocks are cheap. But since you don't know where the bottom is, instead of putting a huge lump sum into the market all at once, a common practice is to invest in smaller amounts over a period of time (dollar cost averaging). This reduces the risk of entering at too high a price or missing out on entering at low prices before the market turns. i.e. you will get in at a variety of prices averaging out at somewhere in the middle of the price range of the bear market.

If you try to pick the bottom and invest all at once you may:

1. enter too early and pay too high a price only to see prices drop even further and take a long time to recover

2. enter too late and miss out on big gains experienced at the turn of the cycle

Entering bit by bit spreads the risk. Be mindful of transaction costs though, obviously investing in lots of $500 is not wise when it costs $30 per trade.