Two of the most dangerous words in the investment world are ‘market timing’. Market timing occurs when investors try to predict the direction of the market with the intention of buying when share prices are low or selling when share prices are high.
While this may seem like a plausible approach, abandoning a sound, long-term investment strategy to chase short-term market trends is extremely difficult and something not even the experts (such as portfolio managers) get right. For those who don’t want to subject their money to a potentially risky investment strategy, time in the market – not timing the market – is the best approach.
Find below a graph that indicates the different returns, if you have missed out on the 10 best days.
Having an investment plan and clearly determining your time horizon is a key element in constructing your performance and achieving the best returns.
PATIENCE AND DIVERSIFICATION ARE THE BEST ANSWERS
Although timing the market can be lucrative, having a well-diversified portfolio and the patience to remain invested over the long term may be what is needed to achieve your financial goals. While past performance is not a guide to future returns, it’s critical to understand that time in the market is much more important than timing the market, and that sticking to a sound long-term investment plan is often the most-rewarded approach.
Also see Prudential’s latest advert that emphasize the point: Consistency is key!
Sources: Articles from Prudential asset management and Alexander Forbes