You hear about winners all the time. They’re the people who got in at the right time and made a lot of money by buying the right stocks or investing in the right sector. It’s natural to want to get in on the action. Occasional success may lead you to believe that one can consistently time the market. But is it worth it to try?
3 reasons to avoid market timing:
1. Long-term investors benefit from not jumping in and out of the market.
No matter what increments of time are examined, - days, weeks, or years – stock markets tend to go up roughly two-thirds of the time. And that’s based on data going back over 60 years. No one knows when a crash may occur or a particular stock will tank. But for an individual with a reasonably long investment horizon, this trend adds up to predictability.
Predictability generates the confidence needed to stay invested and committed to a plan instead of reacting to hype or emotion.
2. Over the short term, it’s anybody’s guess
The stock market gives little or no warning when it tumbles. Individual stocks can take a dive based on economic events or bad press. Geographic sectors can drop based on speculation about political events. While these things can’t be timed with any accuracy, a good financial plan, that is based on your time horizon and matched to your risk tolerance, provides a balanced approach to investing and can help you ride out the turbulence with confidence.