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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

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