Recent research shows that investors who begin investing during bear markets do better over the long run than investors who begin in bull markets. T. Rowe looked at four different thirty-year periods, two of which that started with bear markets (1929 and 1970) and two that began with bull markets (1950 and 1979). They looked at the difference in the outcomes for investors who contributed $500 a month over these periods. They found, the investors who had begun investing in bear markets had much higher overall returns than the investors who had started investing in during a bull market. Keep in mind this is true for those who stay invested for a long time frame. Is more applicable to young investors then for retirees.
The stock market has always gone up with time but never in a linear fashion. There are times for a rapid increases as well as times when the market drops. Historically, the markets have always rallied and gone to new highs. As a result, purchasing mutual fund shares in a down time for the market is like buying things on sale. You get a great deal for the dollar. Whereas purchasing shares in a bull market is likened to paying top dollar for that item you just have to have now. There is less room for a continued rise and actually an increased chance for a short term fall in value. Just look at the tech boom a few years ago or more recently the housing market.
The best advice for investors is to not try and predict which way the market will go or what sector will be hot but to consistently invest in an appropriate asset allocation to fund your future goals.
The correct mix of investments should be based upon your risk tolerance (your mental ability to handle the ups and downs), your risk capacity (your financial circumstances, income, assets and liabilities), as well as your goals, which include your time frame.