"Time In The Markets..."

The old adage has been proved true.

Nobody can exactly predict a stock’s future price, but that doesn’t stop many from trying to do so. Study after study over the years has shown that “market timing” does not work and that “time in the market” is the way to go.

“Market timing” means buying a security with the expectation of selling it at a higher price in the short term. Market-timing investors are essentially trying to “beat the market'“ by outsmarting it – or so they think.

While market timing may initially seem to be a variant of the famous saying “buy low, sell high”, the fact that the future is uncertain and that stock prices change rapidly means that it is impossible to accurately and consistently determine when a security has hit its lowest or highest point. 

“Time in the market” means relying on a strategy where you don’t try to guess when the market is at its lowest or highest point. Instead, you buy the market knowing that your timing will probably be off but that, eventually, the fundamentals matter more than the timing.

The “time in the market” investor will stick with the market until the original reasons for buying change, or they’ve reached their intended goal, e.g. they’re now approaching their retirement years.

Here’s a statistic for you

If an investor tried to time the market and missed the best-performing days over the last century, they would have earned just a fraction of the total returns. For example, staying invested led to over 17,000% returns, yet missing the ten best days over each decade led to returns of just 28%.

Historically, the biggest drops in the market often happen just before the largest upswings, meaning that opportunities can be easily missed.

Even the top investors have trouble timing the market at every turn.

It’s imperative to begin the investment process with a clear idea of your goals and the time frame for your financial plan to accomplish them. Once you do this, it should become clear that the goal is not to “beat the market” but rather to reach or exceed your personal goals.

A diversified portfolio of investments held for a number of years has historically proven to provide greater returns than those who try to jump in and out of the market at what they believe are the lows and highs.

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