by Ian Arrowsmith
Why You Should Not Try to Time the Stock Market
It’s commonly known that trying to time the stock market is frowned upon, mainly because it’s a risky way to manage your investments. Some investors have been known to hurt their portfolio performance by doing just that. If you or someone you know is trying to predict the perfect moment to invest in the market, it may be time to re-evaluate that approach.
Sure, there are investment gurus who swear “timing the market” is the key to making colossal gains. And there are plenty of people who believe it’s possible, especially among those who aren’t heavily involved in the market. It certainly seems plausible that all it takes is the right insight, and presto!
But the truth is, it’s no easier to predict the future of the market than it is to predict the future in general. There have only been a few successfully predicted bear markets over the past 100-some years. Most “predictions” around market swings are actually just examples of a prognosticator getting lucky, and the “experts” are the ones who try to pass off that luck as skill.
When it comes to investing, “successfully timing the market” is one of the biggest myths around.
Don’t Try to Predict the Future of the Stock Market
You can look at the past performance of an investment to get a general idea of how it’s performing, but there’s no way to turn that into any sort of accurate prediction about its future.
Performance indicators change all the time. When a reliable indicator is presented, it can quickly lead to crowding, which can negate the potential benefit. In addition, the advanced models and simulations needed to create a reliable prediction are often so expensive that they cost more than the potential benefits, to begin with!
Instead of looking for a specific factor, try focusing instead on broader trends. We find it helps our clients get a better general sense of the direction an investment is trending and then use that information to help make more informed decisions. Just don’t fall into the trap of focusing too much on past performances; you can’t make an accurate prediction about when an investment will reach an exact value, no matter how much research you do.
Remember, if investors could accurately predict how well their investments will behave, everyone would be a millionaire. That’s why the best investment strategies are the ones that balance tolerable risk with potential gains. You want a portfolio that can be adjusted and corrected, and that relies on probability to earn you money over time without gambling on hitting it big with one well-timed transaction.
Invest for the Long Haul
Patience is also a virtue in the investment world; it may be the most important part for a wise investor. Make long-term investments that can grow steadily, rather than trying to time the market for short-term gains. Take the long view and approach your investments with an attitude that you probably won’t see results right away, but that your portfolio can grow over time.
Investing wisely is like growing an apple tree; it’s going to take years for it to grow and develop. If you plant one tomorrow, you wouldn’t expect to eat an apple from it the next day. The same is true of investments. Invest now, but don’t expect to see profits from your investments right away.
By focusing on the long game, you can potentially avoid the most common pitfalls for inexperienced investors: panic and overconfidence. These are often the major drivers of irrational investment decisions, especially when it comes to short-term investing. Investors with a short-term outlook can be easily spooked by fluctuations and corrections in the market, and their decisions may suffer for it.
Don’t fall victim to these mistakes. Instead, set up a plan with a qualified financial advisor and stick to it. You’ll be more likely to end up with a diverse, long-term investment strategy tailored to your goals, risk tolerance, and time horizon. Just understand that you’re establishing a long-term plan, not chasing after quick gains.
Read: 8 Common, Yet Unnecessary Risks Investors Take in Their Financial Plans
Invest With Confidence
With a good investment plan and a financial ally on your side, you’ll make smarter financial decisions without the constant agitation and struggle of chasing trends. When it comes time to cash in on your investments, we believe you’ll be glad you took this approach.
At Scarborough Capital Management, we:
- use strategies focused on the long-term
- carefully manage risk, with your goals in mind
- analyze investment options using a multitude of criteria, including, but not limited to expenses, risk, style, and track record
- explain the process without the jargon, so you understand and are comfortable with how your money is invested
Talk stock market volatility with a financial advisor in Annapolis, MD, to get investment support and let us earn your trust.
It’s time to rely on facts, not fads to drive your investment success. Get comprehensive financial planning with a CERTIFIED FINANCIAL PLANNER™ and CHARTERED RETIREMENT PLANNING COUNSELOR™.
Our team will help you analyze and address every part of your financial life including investments, debt, estate planning, social security, pension and employee benefits, college funding, and much more. There’s nothing we love more than helping you and your family map out your financial goals one-by-one, then helping you work toward them!
Scarborough Capital Management was founded on the belief that everyone deserves access to high-quality financial advice. That’s why we offer financial planning with no minimum account requirement to meet.
We have strived to help individuals make smarter financial decisions for over 30 years. If you’re looking for help with your plans for the future, contact us.
The information provided is general in nature and should not be considered investment, tax, or financial advice. The views expressed are the opinion of Scarborough Capital Management and are not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities. The views expressed were current as of the date indicated and are subject to change.
Investing in securities involves certain risks which may include an entire loss of principal invested. Investors should carefully consider all risks involved before investing. Asset allocation does not ensure a profit or protect against a loss in declining markets, but it may help decrease volatility. Differences in portfolio size, investment holdings, plan and investment expenses, and other factors are all expected to contribute to variations in investment performance. Please note that asset allocation and rebalancing programs may not be appropriate for all investors. Investors need to be aware that no investment plan or asset allocation strategy can eliminate the risk of fluctuating prices and uncertain returns. Past performance is not indicative of future results.