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Time in the market, not timing the market
You might have heard the aphorism “time in the market, not timing the market” before. It’s one of those pieces of financial wisdom that sounds a bit like a riddle. So, what does it really mean, and more importantly, is it actually good financial advice?
THE STRATTON & TASBURGH BOOK Should you follow this advice?
When people talk about “time in the “Hello market”, they’re often discussing the benefits of taking a long-term I found your number in approach to investing. This means buying investments and giving THE STRATTON & them time to grow, taking a patient approach and understanding that it’s compounding over time which TASBURGH will deliver results and grow your portfolio. BOOK”... “Timing the market” refers to the practice of trying to actively buy assets at their lowest price and sell them at their highest. The difficulty here is in accurately predicting and timing these events, meaning you could be leaving a lot of money on the table if you sell at the wrong time. So, the phrase “time in the market, not timing the market” is all about how it’s better to buy growth assets and hold them long term rather than trying to actively buy and sell dips or peaks. This is a strategy that many investors attempt to use, where they try to time their entry Tele: 01603 717681 into specific markets to capture the best prices. The trouble is that it’s tracey@satbook.co.ukvery difficult to make investment
decisions based on short term data, and as the last 2 years have shown us, it can be very difficult to predict how markets will react to pieces of news – and even more difficult to predict the news itself! In general, the principle of buying growth assets that you like and holding them over time is a good investment practice, even in a rapidly changing market. History shows that even the most successful active investors struggle to time their entries and exits into markets right with any particular consistency. Plus, the data shows that on the whole, markets are positive. If you look at rolling 3-month periods over the last 25 years, the FTSE 100 has been up 70% of the time, and down for only 30%. This means that if you buy a stock within the FTSE 100 and held it for 3 months, 70% of the time you’d be making money. If you extend the period to a rolling 10-year hold, the data is positive 98% of the time. Making long-term decisions generally leads to positive results, and the longer the time period you look at, the better your chances are. Of course, this only holds if you buy the right stocks. There’s still an element of analysis and knowledge involved – you can’t simply buy any investment at all and hold it forever and expect to get returns. But in general, the data demonstrates that choosing the right investment and then having the patience to hold it for a long period is a good investment strategy.
How do I follow this advice with my portfolio?
So, how do you follow the advice that it’s about “time in the market, not timing the market” for your own portfolio? It’s actually the same advice that we offer most of our clients: • Ensure you have a welldiversified portfolio • Don’t make snap judgements or rush to buy or sell investments without very good reasons • Don’t assume that bad news will always cause prices to dip • Ignore market fluctuations and be confident in your diverse strategy • It’s better to be too early than too late – if you like an investment and want to own it, you should own it, don’t try and time your entry • Think long term – consider investments over years, not days
Need help with your investment strategy? Face to Face Finance offer investment and savings strategies that don’t gamble on short term performance or second guess the markets – they’re based on tried and tested diverse strategies.
This article is informational and for entertainment purposes only. It should not be considered as investment advice. Your capital is at risk when you invest.
