Broker Check
Market Timing

Market Timing

October 20, 2023

Go into any corner of the globe these days and you’ll encounter some degree of chaos. Go into any corner of the financial world these days, and you’ll find chaos without even getting out of your chair.
So, what are today’s cautious investors supposed to do? Where’s the “safe bet”? Where’s the danger zone? What if I make the wrong decision?

Timing in today’s market is critical, to be sure. But would you be surprised to learn that just being in the market is better than waiting for that “perfect moment”? According to Charles Schwab and American Funds, holding off and hoping for perfect timing is, well, like trying to catch a fish without putting a line in the water! See for yourself on the following page!

The Schwab 20-year investing example shows the advantage of being in the market, regardless of timing. Even Mr. Linger, who didn’t invest at all, made almost $4,000. Every other investor more than tripled or nearly tripled their investment. They caught their limit of fish! And you can, too!

Chaos is currently a staple of our diets. We can help limit some of it! Please contact us with your investment questions and stay tuned to our website blog page to remain up to speed on the nonstop financial world. And keep your line in the water – there’s plenty of fish out there!

Schwab ran the numbers on market timing. The findings? There's a high cost to waiting for the best entry point. The research shows that the cost of waiting for the perfect moment to invest typically exceeds the benefit of even perfect timing. And because timing the market perfectly is nearly impossible, the best strategy for most investors is not to try to market-time at all. Instead, make a plan and invest as soon as possible.

Consider the research on the performance of five hypothetical long-term investors following very different investment strategies. Each received $2,000 at the beginning of every year for the 20 years ending in 2022 and left the money in the stock market, as represented by the S&P 500® Index.

1. Mr. Perfect was a perfect market timer. He had incredible skill (or luck) and was able to place his $2,000
into the market every year at the lowest closing point.
2. Mrs. Action took a simple, consistent approach: Each year, once she received her cash, she invested her
$2,000 in the market on the first trading day of the year.
3. Mr. Monthly divided his annual $2,000 allotment into 12 equal portions, which he invested through dollar
cost average at the beginning of each month.
4. Ms. Rotten had incredibly poor timing—or perhaps terribly bad luck: She invested her $2,000 each year at
the market's peak.
5. Mr. Linger left his money in cash investments (using Treasury bills as a proxy) every year and never got
around to investing in stocks at all.

Naturally, the best results belonged to Mr. Perfect, who waited and timed his annual investment perfectly. But the study's most stunning findings concern Mrs. Action, who came in second with $127,506—only $10,537 less than Mr Perfect. This relatively small difference is especially surprising considering that Mrs. Action had simply put her money to work as soon as she received it each year—without any pretense of market timing.
Even badly timed stock market investments were much better than no stock market investments at all. The study suggests that investors who procrasnate are likely to miss out on the stock market's potential growth.

Given the difficulty of timing the market, the moist realistic strategy for the majorityof investors would be to invest in stocks immediately.

Procrastination can be worse then bad timing. Long term, it's almost always better to invest in stocks - even at the worst time each year - than not to invest at all.

Dollar-cost averaging is a good plan if you're prone to regret after a large investment has a short-term drop, or if you like the discipline of investing small  amounts as you earn them.

Lastly, it's important to note that there is no guarantee you'll make money through investing in stocks. For instance, there's always a chance we could enter another period like the 1960s through early 1980s.

Hang in there!

We’ve Got You Covered!
The Rundahl Financial team

*Adopted from Schwab’s:

** Active portfolio management, including market timing, can subject longer term investors to potentially higher fees and can have a negative effect on the long-term performance due to the transaction costs of the short-term trading. In addition, there may be potential tax consequences from these strategies. Active portfolio management and market timing may be unsuitable for some investors depending on their specific investment objectives and financial position. Active portfolio management does not guarantee a profit or protect against a loss in a declining market.