Market timing is an intriguing concept. The dips in the market are so painful and if you could simply move your contributions to the portfolio back a couple of months, you could have saved money and avoided a lot of pain.
Unfortunately, as we’ll see it may not be that easy and as there is a cost attached to it. Attempting to time the market could hurt you more than you think.
With the election season setting in, there are several people who are looking at timing the market. Let me take you through some myths of timing the market.
• Timing the market comes with opportunity costs
Moving your money out of the stock market and parking it in cash, may feel safe, and historically cash has been a secure investment relative to the market’s ups and downs.
But, holding on the money with you or only sticking to safe investment options comes with its own set of risks.
If you observe, the overall trend line of the Sensex, you will figure that despite the gyrations, the Sensex has been moving in an upwards direction since 1991.
Hence, you can be rest assured of one thing, if you have been consistent with your investments and rather than waiting for the right opportunity and place your money in the stock markets, you would have certainly made a profit today.
• Timing can be unsuccessful also
Post-2003, right up to when we had hit the 2008 crisis – the world and the Indian markets had seen the most prosperous phase.
Everyone was busy riding the Bull Run and there was only a handful few around the world who spotted the glitch.
Most of the analysts, trend-experts, and economists who spent the entirety of their time in analyzing the market had failed to see the storm that was about to hit us.
Always remember, that although you can look at a stock chart and imagine what you might do, your actual behavior may be quite different than you project due to the emotions of fear and greed. This can consume even the most well-intentioned investor.
And, most of the investors can miss out on the best of opportunities, in timing the markets and making the right moves.
• Timing can add to your costs
Remember, if you have money in a taxable account, the costs of trading can be particularly high.
Not only are there commissions and bid/ask spreads associated with trading in and out of the market, and these can erode returns, but frequent trading (especially holding periods of under a year) can come with the particular tax consequences.
Hence, how do you counter all this?
So the market may be less driven by predictable patterns than our brains may lead us to believe. The track record of investors actually timing the market has been poor, perhaps due to emotions clouding judgment.
My simple advice – if you have money to invest for the long-term, it seems putting it to work quickly beats waiting to try and find the perfect moment to enter the market.
The author is Head, Personal Wealth Advisory, Edelweiss.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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