If you turn on the news, you are bound to see discussion about the uncertainty of the current financial market. When you log into social media, it’s easy to find hundreds of “experts” discussing “buy now” and “sell now” strategies. The idea of properly timing investments for a quick return is not a strategy we believe in and is not something we ever recommend for clients. In this article, we will discuss why we don’t believe in investing based on market timing.
What is Market Timing?
A practice typically used by day traders, market timing refers to the process of using predictive methods to determine when to move investment money in or out of a financial market. Certain investors believe if they can predict the movements of the market, they can buy and sell to create a significant return.
According to Investopedia, “many investors, academics, and financial professionals believe it is impossible to time the market.” For the majority of investors, engaging in market timing produces lower returns than long-term strategies.
Though some traders claim to have success with this method, there are no guarantees when it comes to the stock market. As professional financial planners, the Blakely Financial team will always stress the importance of the time your funds stay invested rather than encouraging investments based on an opportune time.
The Buy and Hold Strategy
The buy-and-hold strategy is essentially the opposite of market timing. Basically, with buy-and-hold, you purchase securities and hold on to them regardless of how the market is performing. Historically, this method yields significantly higher returns than market timing.
It is difficult to predict the ebbs and flows of the stock market. In the current bear market, it’s important to remember that historically, after every bear market, a bull market follows. Overall, the U.S stock market is positive most of the time, and bull markets last more than twice as long as bear markets. Though it can be difficult to navigate a bear market, rational thinking and patience are the best ways to ensure the success of your investments over time.
Avoid Emotional Strategies
When experiencing a rough patch, successful investors will look toward the future instead of taking drastic steps to correct a loss. If the market is trending downward, you may feel compelled to sell off stocks for fear of more substantial losses. On the other end of the spectrum, some may feel pressure to “buy the dip” with hope that prices will soon rise again rather than continue to fall. These reactions operate under contradictory assumptions, and can be incredibly risky maneuvers. Additionally, the financial and emotional stress of monitoring price changes so closely is rarely, if ever, worth it.
Choosing your investments intentionally based on your overall financial goals can give you peace of mind regardless of the state of the market. When you are experiencing stress or fear in regards to your portfolio, review your investments with your Financial Advisor, they will be able to provide the insight you need.
Historically, the buy-and-hold method yields significantly higher returns than market timing. Attempting to time the market is not a strategy Blakely Financial supports, regardless of how attractive certain opportunities or indicators may be. The road to financial freedom looks different for everybody, but it is important to prioritize the time your funds stay invested over the timing of your investments. The team at Blakely Financial can guide you toward well-informed, diversified, and long-term investments to grow your wealth over time.
Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.
Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.
Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.