Time in the Market versus Timing the Market

Keeping a watchful eye on your investments can be an emotional rollercoaster. It’s very tempting to react to every little upswing and downswing in the market because it’s your hard-earned money on the line. Markets rise, fall, plateau, bottom out and then rebound time and time again – we just don’t know exactly when or why. You can’t predict the future, no matter how much research you do. This is why time in the market always beats timing the market.

Timing and Luck

If you believe you can time the market successfully by buying and selling at the right moment, you need a lot of luck. Actually, you will need to be lucky three times to really cash in. If the market is on an upswing and you want to cash in, you will have to guess the best time to sell. But what if you sell and your holdings continue to rise? If you did sell at the right time, you need to pick a new place to park your money until you are prepared to invest again. This could involve higher risk or suffering through tiny savings account interest rates. Once you are ready to invest again, you need to get lucky by timing your purchase when the market has actually bottomed out – you risk missing the rebound in this case.

Reaction vs. Patience

When you notice the market is on an upswing, it can be tempting to start investing extra money. The same goes for when the market is dropping – a voice in the back of your mind is probably screaming “sell!” It’s in our nature to react to changes that could affect our well-being, but in this case, it’s not very smart. You are much more likely to have success in the market if you keep your money in for a significant amount of time. Your holdings will survive through peaks and valleys, rebounds and bottom outs, you just need to be patient and trust your financial advisors.

To come out ahead when timing the market, you need to have a lot of luck. You need to guess right three times in a row, which has proven to be very difficult to do. Don’t be tempted to base your investment decisions on timing and predicting the market. For help with your investment decisions, you should talk to a financial advisor at The Beacon Group of Assante Financial Management Ltd. They will help you focus on the long-term by showing you exactly why time in the market is better than timing the market.