Timing the Market or Time in the Market?

Out of all the disagreements in investing this one is probably the most contentious. Is it timing the market (buy and sell) or time in the market (buy and hold) .

Time in the Market – advocates say that it’s impossible to time the market by selling at the top and buying at the bottom. So the best returns are delivered by simply holding through market cycle and rebalancing periodically.

Timing the Market – advocates say that there are indicators which reveal times when markets are too risky and times when it is good to buy. Generally, you won’t get the exact top or bottom but timing delivers better returns than buy and hold.

So whose right?

If you look at stockmarket history you will see that the greatest damage to your portfolio is when the market suffers large losses. It does this on a fairly regular basis and sometimes like 2007-08, the losses can be extremely damaging. Look at the Australian ASX300.

In 2007, the ASX peaked at approximately 6,500. It then crashed in the GFC to a low of approximately 3,500 and currently sits at 6,100 in February 2019. So as of 2019, the ASX has still not returned to 2007 levels. Rightly buy and holders will say I am selected specific dates. And that is true. If you select March 2009 to February 2019 thus missing the big losses, you will have nearly doubled your money! But that would be timing the market.

I think both are correct and neither are correct. Why? Because it’s more important to recognise whether it’s a bull market or bear market. In bull markets like the 1982-2000 bull market, the returns from buy and hold were tremendous. But from 2000 to 2019 the buy and hold returns have been basically dreadful.

So before you get lost in the time/timing argument ask your self is the broader market in a secular bull or secular bear market.  If it’s a bull market, you can pretty much buy and hold. In a bear market, timing works better because you increase your chances of missing out on the large falls the markets delivers.

At www.stockmarketmentor.com.au, I can show you how a range of indicators which can assist you in missing large stock market falls. Together we can develop an investment map that suits the times and secure your financial goals and build wealth for your future.