Q: I am 22 and six months into a real adult job! This has freed up some capital to invest $5,000 into the share market.  Is now a good time to invest or should I wait?

A: Given you now have regular full time income, your first objective should be to establish regular disciplined savings habits and manage your “financial hygiene”.

As you have full time work, make sure you have income protection insurance to provide you with income if you cannot work due to illness or accident.

Create an emergency fund.  Put aside an amount that will act as a buffer in the event that your circumstances change and you need access to cash.

If you have bank or credit card debt, clear it before you embark on any savings program.

Once these “financial hygiene” matters are under control, you can start saving.  Identify your savings objectives and allocate funds to these as short, medium and long term goals.

Savings for short term goals should be invested in the bank to avoid the risk of volatility.  Savings for medium to long term goals can be invested into growth assets that may be volatile but may offer better longer term returns.  The critical factor will be the habit of investing on a regular basis regardless of market conditions.

Given the amount you have to invest, I would encourage you to look to invest into diversified investments such as managed funds rather than investing into direct shares.  This reduces the risk you face by investing via a fund manager into a diversified range of investments and asset classes.

Diversify your portfolio into a range of sectors, companies and regions.  Recognise that market volatility can create attractive opportunities.  A stock market correction can be a good time to invest in equities.  Over the long term, equity risk is usually rewarded.  Empirical studies have shown the value in long-term compounding returns and the benefits of investing a regular amount into a portfolio on a regular basis regardless of whether markets are rising or falling.

In a volatile market it is often difficult to stay on track with your savings strategy. All Investment markets run in cycles, make sure your portfolio can weather the cycle and ensure you have sufficient time to allow your portfolio to recover.

The best way to navigate a choppy market is to have a good long-term plan and a well-diversified portfolio. But sticking to the fundamentals is sometimes easier said than done. Setting good habits early on is the key, get the basics right and a world of opportunities will open up. The hardest part is starting, making the ongoing commitment and being accountable to one’s self.