TIMING THE MARKET
The concept of market timing is very seductive. After all, who wouldn’t want to be in the market during the good times and out of the market during the down times? Market timing is just like a crap- shoot. Sure, you may get lucky and wind up gaining more than you anticipated. Or, perhaps, you happened to buy into a stock just before it skyrocketed. But how often does that happen? More importantly, what happens when you don’t time the market well?
The key to successful investing isn’t timing the market; it’s time in the market. Investing and staying invested is a long-term way to build your future. Even when the market is down, or going through some turbulent times, it’s better to stay invested than to sell and try to buy later. Especially when faced with short-term market corrections, getting out of the market may prove to be more devastating than sticking it out.
During a bear market, my clients will call and ask my opinion about when I think the market will start to come back. Unfortunately, the fact remains that no one is able to predict what the market is going to do. This leads many people to try and time the market. I also get calls from clients asking me to sell all their equities and put them into a cash position. They say that they will then reinvest when the market starts to come back. What they don’t realize is that by the time they think the market is “on its way back up,” they have already missed out on 10–20 percent in growth. By selling during a down market, you turn paper losses into actual losses.
Recently, when the market started to go down dramatically, I had a client call and want to liquidate his entire portfolio. He was upset that the market had continued to slide and that he was losing money. He was also concerned because he was taking monthly income out of his investments, which impacted the account values, as well. His overall portfolio was valued at more than one million dollars when we had this conversation. Although he didn’t come out and say it, he was scared about losing his money, and wanted to protect himself against any further losses. He wanted to me to sell everything and put it into a cash account. At that time, the money market funds were offering interest rates of about four percent.