skip to Main Content

Market Timing: Risky Gambit?

As a child, you may have had to pass time on long car rides and trips. When I was young, I liked to pass the time by playing a very simple game with a stopwatch. I would click start, watch or listen to the seconds ticking by, and then try to time it so that it would show exactly 10 seconds when I pressed stop. This seems easy, but I found that I was only able to stop the watch at the correct time about one out of every hundred times. The other attempts I would stop it just a hair early or a touch late. This seemingly simple game draws some important connections to investing and trying to time the market. You may think you know exactly the right time to buy or sell, but are you able to execute perfectly? Let’s explore why we feel it’s important to stay invested for the long-term, stick to a plan, and not get swayed by the market’s short-term movements. 

Multiple Successes  

Successfully timing the market requires more than one correct decision.  

  • Initially you must pick the correct time to sell out of the market. Sell too soon and you can miss a market uptrend. Wait too long, and the market may have already bottomed and be back on an upward trajectory.
  • The second decision you need to get right will be when to reinvest or buy back in. You risk a lower return or being stuck in cash waiting for a dip that may never come if your timing is imperfect.
  • Getting stuck in cash and not reinvesting can have a large negative effect on your returns. Staying invested is the most prudent course of action.
Source: Schwab Center for Financial Research 

Risks of Trying to Time the Market:

  • Risk of lower returns – Over the last 20 years, if you stayed invested in the S&P 500 the entire time you would have earned 9.4% per year compared to just 5.2% if you missed the best 10 days of the market.
  • The best days in the market tend to follow the worst days – Over the last 20 years, 24 of 25 best days in the market have followed within 1 month of the worst day. 

Control What You Can Control 

It’s important not to add stress to your life by worrying about when the bottom or peak will occur and buying or selling at the exact moment the market reaches it. Instead, focus on the aspects of your portfolio you can control:

  • Stay Invested – Instead of going to cash with your investments in times of market turmoil, stay the course. Your financial plan was built around your risk appetite and incorporates times of volatility.  
  • Investment Contributions – Downturns tend to be great entry points into the market and developing a plan to deploy capital during these times can be a great idea.

Markets move up and down, but returns are driven by ‘time  in the markets, not timing the markets’.  Trying to time the market is risky and even if you can time it to perfection, it doesn’t generate significantly higher returns than if you were to stay invested through the market turmoil. The volatility we’ve seen this year is not out of the ordinary, and July’s sharp rebound underscores the importance of staying invested. Focusing on what you can control and communicating with your financial advisor are pivotal in times of turbulence. 

Since hardly anyone carries around a physical stopwatch anymore, I offer you a challenge. Pull out your phone, open the stopwatch app, and play the game. Can you stop the clock at the exact time you were trying for? 

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

Back To Top