When the market is going up, do you ever feel optimistic and decide to invest more than usual? And when it’s going down, do you ever feel nervous and consider selling some of your investments? On the other hand, maybe you’re the type who aims to buy when the price is at its lowest and sell when it’s at its highest.
The problem with trying to time the market, however, is that nobody knows exactly when the market will rise or fall. It’s impossible to know if the turn will be short-lived or longer-term. And if you think you can time the market successfully by buying and selling at opportune moments, there’s one thing you need: luck. In fact, you need to be lucky not once, but three times:
1. When you sell. If the market’s going up and you want to cash in on the profits, you must guess the correct time to sell. But you could end up selling when you think prices have peaked – only to watch those investments you’ve just sold climb to new record highs.
2. While you’re “parked.” After selling, you need to choose a suitable place for your profits. These days, that may involve taking on higher risk or settling for meagre interest.
3. When you buy again. While you’re parked, you need to guess when the market has bottomed for real so you can buy again. But if you guess incorrectly, you could miss a sudden rebound.
To come out ahead, you need to get all three right time after time – which is unlikely, to say the least. If you’re ever tempted to make investment decisions by trying to predict the market, talk to your advisor. They can help you focus on your long-term plan by illustrating how time in the market beats timing the market.