3 reasons why chasing big returns is a losing race

Over time, stock markets may be more predictable than you think. A long-term strategy can be more effective than trying to time the markets and chasing big, one-time returns.

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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[1]. 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.

 

Figure 1. Take a close look at the far left and far right columns. 2008 was the worst year for the S&P/TSX total return. 2009 was one of the best. No one saw that coming in 2007.

 

3.     Timing requires selling

Timing the market means buying low and selling high. Investments have to be sold in order to realize any gains. When you sell, your money will be out of the market, sitting on the sidelines. During the time you are not invested, you could miss out on returns that could have been predicted by simply staying invested. See How safe are the sidelines?

When it comes to timing, time itself is your best ally. Invest for the long term, based on your goals, as part of a complete financial plan that leaves you feeling confident in any market.

 

 

[1] Whitepaper: Time in the market, not timing the market, is what builds wealth

Stephen Rogers, Investment Strategist, I.G. Investment Management, Ltd.

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