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Market Timing

Market Timing: The strategy of making buying or selling decisions of financial assets (often stocks) by attempting to predict future market price movements.


Basically, trying to sell at the high price, and buy at the low.


Taking a look at the effect of attempting to time the market for the purpose of buying and selling, offers some interesting observations.


If you invested $10,000 in 1980 in the US S&P 500 index (this represents the top 500 American companies performance), today it would be worth somewhere near $660,000*. This is as a result of remaining IN the market for the full 10,000 days of trading.


However if you were caught up in the idea that you could time the market and you tried to sell when the market was high and buy when the market is low, here lies the danger.


Let’s say, over those 10,000 days, you missed out on the 10 best days of investing. Your portfolio would now only be worth $320,000*. Over 50% less because of TEN. DAYS.


There is a far more reliable strategy to maximise your return over the long term, which helps to guide us through market volatility.


We start with a well-diversified portfolio across a range of asset classes in line with your agreed tolerance to risk.


Then you implement a disciplined rebalance strategy back to your agreed asset allocation weightings. This will allow you to top up your assets that have fallen in price and sell assets that have risen in price.


Investing can draw on emotions, though this strategy works to remove some of the emotion by creating a process which occurs automatically at regular intervals.


If you would like to discuss how a financial planner can help you build a strong financial future, please contact our office on 02 4244 4054 to book a chat with James.


The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.


Webb Financial (Financial Planning) Pty Ltd T/As Webb Financial ABN 37 622 060 422 and James Mottram are Authorised Representatives of Synchron AFS Licence No 243313 for financial planning services.



* https://www.fidelity.com/viewpoints/investing-ideas/strategies-for-volatile-markets

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Andrew Webb is a member of the Institute of Chartered Accountants of Australia

Webb Financial (Financial Planning) Pty Ltd T/As Webb Financial ABN 37 622 060 422 and James Mottram are Authorised Representatives of Synchron AFS Licence No 243313 for financial planning services.

© 2019 by Webb Financial