Why Market Timing is not a Smart Investment Strategy

Randall J. Richard
Wednesday, September 11th, 2019
Posted in: Financial Planning
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It’s every investor’s dream to make a profit on their portfolio by timing the buying and selling of equities at just the right period in order to make a considerable profit. Perhaps it’s based on the current activity of a stock or asset, market news, or economic indicators. Whatever the motivation, timing the market means you are trying to predict that you will do better economically over the long term based on short-term indicators if you move in and out of the stock market or change your asset mix.

However, moving assets in your portfolio in an attempt to “time” the market has proven to be a losing proposition: According to a study by Morningstar, investors that moved in and out of the market in a ten-year span between 2004 and 2014 actually lost money: their returns were 1.5% less on average than those that just stayed in the market during the same time.

There are other costs to market timing: transaction costs like fees and commissions will take a chunk out of any positive returns you might earn in buying and selling equities.  In addition, you could be subject to significant tax consequences from the capital gains you receive.


There are always those outliers who manage to make big gains through market timing. However, for the average investor, studies show that the opposite is true, and that there can be significant opportunity costs associated with moving your assets around. A JP Morgan study showed that if an investor in the S&P 500 missed out on just the ten best days from 1995 to 2014, their annualized return would fall from 9.85% to 6.1%. That’s an enormous opportunity cost.

So what’s the best strategy when it comes to your investments? The soundest strategy is not “timing” the market, but rather your length of “time in” the market. You should focus on the long-term, and choose an asset mix of stocks and bonds that align with both your level of comfort with risk and the time you will have the assets in the market. The proper allocation of assets in several of the right areas can reduce risk and provide more consistent returns over the long run. This is by far the most successful way to accumulate wealth over time in order to reach you and your family’s goals.

A Richard Brothers financial advisor can help you construct the right portfolio for your investment needs. Want more information on a sound portfolio strategy? Contact a Richard Brothers financial advisor today.