Time in Market vs Timing the Market

Timing the market

When attempting to time the market, an investor is attempting to predict a future market price of a stock by trying to assess market behavior. To do this correctly, one would need to monitor the market daily while spending countless hours analysing company financials and other financial ratios to measure the worth of a stock, especially since stock prices change rapidly. Another way to time the market is just by sheer luck. We’ve all had that friend who has bragged about buying a stock at a certain price before its tripled in value and made them a small fortune. But in practice, smart and experienced investors know that simply ‘predicting’ the outcome of a stock in an impossible task with very little probability of success. This in essence is no different to gambling or any other guessing game that tries to predict market movement during its highs and lows. Luck might help an investor on a hand full of occasions, but can this happen consistently? Most definitely not. On most occasions, a person might make money on one trade and then lose everything on the next.

Time in market

This approach does not include short term predictions but is a more patient approach to investing with a long-term view while taking advantage of compounding and investment growth to reap the rewards. This patient approach to investing along with having a longer timeframe in mind will allow investors to gain higher returns on a more consistent basis by allowing their investments to grow over time. The general idea is that the investment is allowed enough time to go through and/or even adapt to different economic cycles over time. Making additional ongoing contributions into the investment will also help the investment compound and grow over the long term, by allowing the investor to average the purchase price of the asset bough over time, and is a common strategy used by financial advisers to achieve long term wealth, capital growth, and income for their clients.

What should I do?

Achieving wealth and financial goals differ from person to person and is a discussion worth addressing with your financial adviser. Assessing current cashflow and how it’s being managed will allow you to direct your cashflow the right way and assist in achieving your goals and objectives. A long-term strategy and holistic plan can aid in managing risk and maximising investment returns in line with your personal attitude to risk and unique circumstances. This in tun will allow you to be better positioned to ride the inevitable ups and downs in the market while having a personalized portfolio that fits your individual characteristics and preferences.