Why Timing the Marketing Doesn’t Work

As an investor, you may wonder if timing the market could help significantly increase your returns. However, it is generally considered unwise to time the market as it can negatively affect your long-term goal of financial independence.

During market downturns, fear, anxiety, and emotions are at an all-time high. These feelings may result in rapid and poor decision making from those who participate in financial markets. These decisions can harm one’s financial plan and goal for financial independence. For example, in the first three months of 2020, headlines of the Covid-19 Pandemic and rapid market declines were prevalent everywhere. This brought fear and anxiety to a high while the markets were at a low. With high fear and anxiety, some felt they needed to make significant decisions, especially regarding their portfolio. According to JP Morgan Asset Management, at the market low, the S&P 500 had declined 34%. Some individual stocks were down even more, but odds were that most investors’ portfolios were greeted with a sea of red most days during the downturn.

This Sea of Red was often met with “panic selling” with the personal promise that the investor would put their money back in the market once it felt “safe”. What many didn’t account for was the rapid market recovery from the “Covid Bottom”, which led to the S&P 500 recovering all of its losses and finishing up 16% on the year – a total of a 50% rebound from the low to the high! Those who panic-sold and let their emotions do the thinking for them missed the opportunity to buy their favorite investments at a discount while missing out on the opportunity of riding the “Covid bottom” up.

According to JP Morgan Asset Management, market volatility is normal. Each year, on average, the stock market will experience a decline of 14%. Despite annual volatility, the stock market has ended the year with gains 32 out of the last 42 years.

History has taught us that it is often better to stay invested and to not try to time the market as the darkest days are often followed by the dawn. In the last 20 years, seven of the best 10 days in the market occurred within two weeks of the worst 10 days. Additionally, six of the seven best days occurred the day following the worst day.

Consider the Covid market. March 12, 2020 was the worst day we saw during that market decline, but immediately followed by the second-best day of the year. Many people who sold on the most painful day were immediately met with regret when the next day, the market began to move in a positive direction.

Investing for the long term in a well-diversified portfolio can result in a better retirement outcome.

What is the secret to good portfolio performance? Review your portfolio frequently with a financial professional to determine if changes are needed. Save early and often to allow the power of compounding to work its magic.

Reach out to a Boulay wealth management advisor to learn more about how your investment strategy is designed to help achieve your financial goals.

Past performance does not guarantee future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.