Diana Clement: Pick the right time to turn back

Newbie investors in gold and other commodities might be wondering if the time has come to get out. Gold has dropped from US$726 to US$683 during the week and the Bloomberg Metals and Mining Index also fell dramatically.

The question is whether these falls were blips or the start of a downward slide.

Naive investors, euphoric over the rise in the value of their investments, often stay in markets when all the signs are pointing to a crash; like lambs waiting for slaughter. Human psychology gets hold of them, especially greed and denial.

In the case of gold, some professional market analysts have predicted that the price could bounce back and spike as high as US$2000 in this cycle.

Copper may be a different case and seems to have broken all the rules of late.

Jeff Matthews, senior financial adviser at Spicers Wealth Management, points out that the speculative money has been leaving copper in recent weeks and the bears are coming out.

What investors need to know (or find a good adviser to tell them) is when the signs in a market say "get out" or at least "sell down". A gut instinct isn't enough. Typically, private investors often get out too early in profit and let losses run too far in a crash.

It's a myth that market corrections or crashes come out of thin air. They are often several years in the making and there are warning signs, which many choose to ignore.

Picking the top or bottom of the market is something that few can do accurately. If economists or stockbrokers could do it, you can bet your bottom dollar they'd be working for themselves.

There are various popular analysis techniques, which believers follow much like religions. They include chart analysis and technical analysis. There is also "crash predicting" software.

Whichever approach you take, it's good to set rules that you stick to such as:

* Have a plan of action in place when you buy into a market.

* Have a point at which you'll get out should the investment fall.

* Keep tabs on the prevailing thought in the market.

* Ask questions when the speculative money is getting out.

* Get to know and use at least one form of analysis.

* Ask yourself if fundamental market factors raise any warning flags.

* Watch the charts and be aware when markets are undershooting or overshooting the mean by a considerable margin.

* Know when to take a contrary view - especially when your hairdresser starts talking about his/her investments.

* Don't procrastinate.

* Don't be ruled by greed or fear.

Another mistake that small investors often make is to be either in or out of a market. They get into whatever that latest fashion is and out as soon as their fingers get burned. All or nothing.

Yet, says Robert Oddy, director of International Financial Planners in Auckland, it is wise to diversify your investments across various classes - perhaps reducing certain areas when those assets become overvalued.

That doesn't necessarily mean getting out of commodities because they're overvalued but "readjusting your holding as a percentage of the total".

Oddy says diversification is a way of avoiding the shocks. The re-adjustment will depend on clients' individual risk tolerance - which can be determined by the use of computer programmes..

The other thing that professionals will often do for their clients is rebalance portfolios, bringing sectors that have risen back into overall perspective. "The object is balancing the investment risk because people don't like losing money."

Property: When it comes to property investing, many of the same indicators that rule all investment markets remain. If virtually everyone you know is talking about how much money they've made in property, then sooner or later something's going to give.

Property market analyst Kieran Trass, of Hybrid Group and author of Grow Rich With The Property Cycle, says some of the key indicators that a market correction is on its way in property are:

* We have passed the peak of population growth.

* Rental property vacancy rates are rising.

* Unemployment is beginning to rise.

* Property construction is dropping.

* The return on investment (rental yields) continues to drop.

Trass believes that all of those factors are now in play in the property market. However, he says the fact that there are far fewer buyers in the market is providing hard-nosed buyers with an opportunity to extract a bargain from sellers who can't wait.