What Happens When You Fail at Market Timing?

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Market timing is the strategy of making buying or selling decisions of financial assets by attempting to predict future market price movements. It is the stuff of crystal ball gazing. But how good is your crystal ball?

The impact of missing just a few of the stock market’s best days (being ‘out of the market’) can be profound, as this look at a hypothetical investment in the shares that make up the American S&P 500 Index of leading companies shows.

  • A hypothetical $1,000 turns into $138,908 from 1970 through the end of August 2019. Miss the S&P 500’s five best days and that’s $90,171.
  •  Miss the 25 best days and the return dwindles to $32,763. There’s no proven way to time the market—targeting the best days or moving to the side-lines to avoid the worst—so history argues for staying put through good times and bad.

Investing for the long term helps to ensure that you’re in the position to capture what the market has to offer.

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Remember

  • Past performance, including hypothetical performance, is not a guarantee of future results
  • The value of your investment can go down as well as up, and you can get back less than you originally invested
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The late John C. Bogle Sr. Former Chairman & Founder, The Vanguard Group 

“After nearly 50 years in this business, I do not know of anybody who has done it [market timing] successfully, and consistently. I don’t even know anybody who knows anybody who has done it successfully and consistently. Legendary investor Bernard Baruch said it best: Only liars manage to always be out during bad times and in during good times”.

“The central proposition of charting is absolutely false, and investors who follow its precepts will accomplish nothing but increasing substantially the brokerage charges they pay. There has been a remarkable uniformity in the conclusions of studies done on all forms of technical analysis. Not one has consistently outperformed the placebo of a buy-and-hold strategy”.

Burton Malkiel, most famous for his classic finance book ‘A Random Walk Down Wall Street

These important messages tie in perfectly with our 6 point investment philosophy here at Wishart Wealth Management:

  1. Keep investment costs very low

  2. Legitimately reduce all forms of taxation wherever possible

  3. Choose the “asset allocation” (spread of investments) that is right for your goals

  4. Re-balance your portfolio when it moves out of line

  5. Adopt “buy and hold” strategies (as the alternatives often cost an arm and a leg)

  6. If your financial plan hasn’t altered – then don’t alter your investments

 

There’s nothing like the start of a new year for getting your finances in order, so please do not hesitate to contact us on 0131 226 2012 or you can email us at urgent@wishartwealth.co.uk