What is market timing?
In short
Market timing is the attempt to predict when it is best to enter or exit the market. Many investors believe they can maximize returns by buying or selling at the perfect moment. But in practice, this turns out to be virtually impossible.
Market timing is the attempt to predict when you can best enter or exit the market. Many investors think this can maximize returns by buying or selling at the perfect moment. But in practice, this proves virtually impossible.
The risk? By trying to time the market, you often miss the best investing days, and that costs a lot of return in the long term.
A question we often get is: “What is the best time to get in?” Many people try to choose that perfect entry moment. The reality is that this actually works against you. Because anyone who misses the best days by staying on the sidelines can forgo returns for years.
Look at the numbers: if you had been constantly invested in the market over the past twenty years with, for example, $10,000 in the S&P 500 index, it would have grown to over $61,000. But anyone who misses just the five best days sees their ending value immediately shrink to $38,741, a decline of more than 40%. When you miss ten or even twenty of the best days, returns fall much further. Anyone who skips the forty best trading days even ends up with a negative result over twenty years. See the table below for the hard evidence:
Source: Dalbar
This clearly illustrates it: market timing rarely works and often leads to lost opportunities and returns. It is almost impossible to predict the very best days, and the biggest stock market gains often come unexpectedly and shortly after declines. Anyone who steps aside temporarily out of fear or uncertainty misses the recovery and later finds that returns are structurally lower.
Our advice? Don't miss a day.
It pays to stay in the market with discipline and not react to the whims of the day. At Mpartners, we do not respond to short-term sentiment, but invest your assets with a clear long-term vision and expertise. That way we make sure you are always properly invested, without the risk of missing the best days.
Market timing may sound tempting, but the evidence shows that a patient, consistent strategy works best. So stay invested, stick to your long-term plan, and let your assets generate returns by letting the market do its job. That way you maximize the chance of successful wealth management.
