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- "Time in the Market" or "Market Timing"?
"Time in the Market" or "Market Timing"?
Does Time In the Market Beat Market Timing ?
Does Time In the Market Beat Market Timing?
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Today’s episode - “Time”
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Time to market👇️
Nobody can exactly predict a stock’s future price, but that doesn’t stop many from trying to do so. Study after study over the years has shown that “market timing” does not work and that “time in the market” is the way to go. That said, academia can be redundant. We’ve simplified the differences between time in the market and market timing to explain the best investing strategies for investors.
What Is Market Timing?
“Market timing” means buying a security with the expectation of selling it at a higher price in the short term. Market-timing investors are essentially trying to “beat the market” by outsmarting it—or so they think.
While market timing may initially seem to be a variant of the famous saying “buy low, sell high,” the fact that the future is uncertain and that stock prices change rapidly means that it is impossible to accurately and consistently determine when a security has hit its lowest or highest point.
What Does Time In The Market Mean?
“Time in the market” means relying on a strategy where you don’t try to guess when the market is at its lowest or highest point. Instead, you buy the market knowing that your timing will probably be off but that, eventually, the fundamentals matter more than the timing.
The “time in the market” investor will stick with the market until the original reasons for buying change, or they’ve reached their intended goal, e.g., approaching retirement years.
Top 3 Reasons Time In the Market Is Better Than Market Timing
No One Has A Crystal Ball
"Stock prices are unpredictable. We do not know what is going to happen. Even if they were predictable, making money on investments would still be impossible since the market price wouldn’t budge from what everyone has calculated to be its future price. If a financial advisor tries to tell you otherwise, be wary."
Investing Is An Emotional Rollercoaster
Regarding investments, company stock prices and markets fluctuate wildly daily. A market-timer may be tempted to sell their investment too quickly to capture a small profit or to avoid a loss even though their original theories about why the stock may grow haven’t changed.
Since 1950, the S&P 500 has seen annual returns fluctuate from a high of 47% to a low of -39%. Human psychology comes into play here. If you suffered a 39% loss in 2008 from attempting to time the market, it can be emotionally difficult to change course and try to time the market by buying. However, market volatility tends to balance out if you leverage time. Looking at the same period from 1950 to 2017, but considering five-year investment horizons, the S&P 500 returns varied from a loss of 3% to a gain of 28%. Even in the worst five-year period, the loss would only have been 3%, which is much easier to handle than a 39% loss.
This is known as the “behavior gap”.
“We’re wired to avoid pain and pursue pleasure and security. It feels right to sell when everyone around us is scared and buy when everyone feels great. It may feel right – but it’s not rational.”
Market timing can significantly affect our emotions and lead us to overlook rational and thorough investment analysis. It's important to be ready to adjust our investments if the fundamental reasons behind our stock choices change. However, market timing often leads us to exit investments too early or hold onto them for too long.
It's Expensive
Frequent trading and trying to time the market will rack up brokerage commission costs, particularly for smaller investors. While the costs for a broker to execute a trade may be relatively low on a trade-by-trade basis, someone who trades frequently can see these fees & costs add up over time and significantly dent their investment returns.
Smart Investing: Focus On Your Longterm Financial Goals
It is important to start the investment process with a clear idea of your goals and the time frame for your financial plan to achieve them. Once you do this, it should become clear that the goal is not to "beat the market", but to achieve or exceed your personal goals. Historical data shows that a diversified portfolio of investments held for several years has provided greater returns than those who try to time the market by buying and selling at what they believe are the lowest and highest points.
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"Time in the market" is a more effective investment strategy than "market timing".
It argues that market timing is impossible, emotionally taxing, and expensive consistently. Instead, investors should focus on their long-term financial goals and invest in a diversified portfolio of assets.
Now, are you prepared to replicate our trades using carefully selected stocks? This is an excellent opportunity to reference our diversified portfolio and plan for long-term, resilient investment objectives.
Check out the newly formed IWA Portfolio! ⬇️
IWA PORTFOLIO
Our IWA portfolios consist of trades from our stock basket. We believe in long-term investments and have curated a selection of carefully chosen stocks to create a well-balanced, safe, and profitable stock portfolio. You can access our daily trades from the three portfolios we manage.
IWA Quality Growth Stocks Portfolio
IWA Quality ETF Portfolio
IWA High Dividend Portfolio
The easy way to begin or enhance your investment journey is to learn from what works for others. This section is for you if you want inspiration from an existing investment portfolio.
The IWA Portfolio is only available to Premium Subscribers.
IWA Quality Growth Stocks Portfolio
One of our oldest portfolios, this began during the pandemic. It's where I started paying attention to finding reliable stocks that will safely generate annual profits for me.
Return YTD 13.36%➡️ 12.03%
Return 2Y 71.49%➡️ 69.47%
Profitable Weeks 53.70%➡️ 51.85%
IWA Quality ETF Portfolio
It’s one of the newest portfolios, having just celebrated its first-year anniversary. We are pleased with its progress, as it's safe, reliable, and stable.
Return YTD 11.53% ➡️ 10.25%
Return 2Y 44.09% ➡️ 42.44%
Profitable Weeks 59.26%➡️ 57.41%
IWA High Dividend Portfolio
I am immensely proud of my holdings, which have grown from a small investment into a strong portfolio of 40 reliable stocks spanning stable industries, focusing on quality dividend growth.
Return YTD 9.38% ➡️ 7.71%
Return 2Y 13.37% ➡️ 11.64%
Profitable Weeks 57.41%➡️ 55.56%
Portfolio Indicated Dividend Yield 2.67%
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Remember: Investing is a journey, not a destination. It's about making informed decisions, managing risk, and staying committed to your long-term goals. So, take the time to research, experiment, and find the perfect recipe for your balanced portfolio.
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Cheers to wealth, wisdom, and a dash of madness!
The Investing Wise Academy Team
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