When the market is on an upswing, are you ever tempted to invest more than usual? And when it’s dropping, do you ever wonder about selling some holdings and depositing the cash in the bank?
Buy and sell manoeuvres like these can be tempting because they seem to be based on logic. After all, we know from past market cycles that markets rise, plateau, fall, bottom out, and then rebound over and over again.
The trouble is, nobody knows precisely when the market will rise or fall. And it’s impossible to know if the turn will be a short-lived blip or a longer-term trend.
If you think you can time the market successfully, buying and selling at opportune moments, there’s one thing you need — luck. In fact, you need to be lucky three times:
1. When you exit. If the market’s on an upswing and you want to take profits, you must guess the correct time to sell. But you could easily sell when you think prices have peaked, only to watch those holdings climb to new record highs.
2. While you’re “parked.” You need to choose a suitable place for the profits you just cashed in. These days, that may involve taking on higher risk or settling for meagre interest.
3. When you re-enter the market. You need to guess just when the market has bottomed for real and it’s time to buy again. Guess incorrectly and you could miss a sudden rebound. They happen.
To come out ahead, you need to get all three right, time after time — unlikely, to say the least. If you’re ever tempted to base investment decisions on predicting the market, talk to us. We’ll help you focus on your long-term plan by illustrating how time in the market beats timing the market.