Contact

News & Insights

Should Investors Try to Time the Market?

Discipline is more important than timing

In 2015, financial market research specialist Dalbar published an analysis of investor returns relative to the market. It found that over the preceding two decades equity funds performed 4.66% worse on average than the S&P 500 benchmark*. One of the major reasons for this: poorly timed investment decisions.

What the firm found was typical of the investment market. During periods of volatility, investors have a tendency to panic and sell, often at a loss, before they are able to enjoy the rebounds.

The lesson here is one of discipline; you can only enjoy the fine weather if you are able to withstand the stormiest times. All too often lay investors, and indeed some of the less experienced wealth managers, get wind of a rising stock – e.g. cryptocurrencies or tech – and chase the heat, only to discover that they have already missed the best time to buy.

Unfortunately, some investors believe they are somehow different, that they will have a “nose” for the market and will be able to keep their emotions in check; however, the reality is that success typically requires the steady hand of an experienced wealth manager to keep them invested for the long-term. After all, history has so far shown that markets rise over longer periods, despite all the innumerable troughs and spikes encountered along the way. By remaining committed to the long-game, investors are likely to increase their chances of enjoying a wealthy retirement.

But what about trend analysis?

The problem with trying to use trend analysis to time the market is that it can tell us nothing about the future; it is impossible to use recent price movement to predict future returns.

And yet, the human brain is hardwired to see patterns, but these are unlikely to prove meaningful. They are, almost certainly, not a reliable tool on which to predicate your retirement investment.

According to the financial economics theory known as the Efficient Markets Hypothesis, an
asset’s price already reflects all the information known about it and as such is always fair; if the market’s future could be predicted, it would already be priced into an asset’s value.**

Blacktower (US) LLC, for short-term solutions and long-term gains

Blacktower (US) LLC provides its cross-border wealth management clients with short-term solutions for practical financial problems as well as long-term strategies for their overarching financial aims, including retirement and legacy planning.

Our approach is based on personalised service, discipline and an in-depth technical and practical understanding of financial planning considerations in the US. By bringing our expertise to your investing strategy, you can be assured of a prudent approach that saves you from the lottery of trying to time the market.

For more information about how we may be able to help you, contact us today.

  * https://www.dalbar.com/Portals/dalbar/cache/News/PressReleases/DALBAR%20Pinpoints%20Investor%20Pain%202015.pdf Accessed 28/06/19

** https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp Accessed 28/06/19

This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.

Other News

Retirement Planning During Your Second Career

When the Social Security program came into force in 1935 the official retirement age in the USA was 65, yet the average life expectancy was 61*. Nowadays, average life-expectancy is around 76 years** and can be much higher among educated, healthy-living individuals, especially women.

Increased life expectancy creates a need for greater retirement assets in order to ensure sufficient income during retirement and one consequence of this is the advent of later-life careers while another is the increased imperative to plan early and to ensure a diverse portfolio of assets.

Read More

Your Children and Your Retirement Planning

The future of retirement planning in the United States is at a kind of crossroads: traditional employer pension plans no longer offer the gold-plated guarantees they used to and it is more incumbent than ever before that individuals devise their own strategies for their long-term financial futures. However, this has come at just a time when retirement investors face an additional pressure: as parents they are increasingly obligated to offer monetary help to their children.

This picture is supported by a recent survey by Bankrate.com* in which half of American parents reported placing their adult children’s financial needs above their own retirement plans.

More than a decade of slow wage growth coupled with a cocktail of spiralling living costs – for example, housing, health insurance and vehicle insurance – mean that younger generations are facing unique financial challenges. Add into this mix the cost and increased popularity of higher level degrees, and it is easy to see why parents might want to help out.

Read More

Select your country

Please select your country of residence so we can provide you with the most relevant information: