Can you successfully time the market?

“Market timing” can be both beneficial and detrimental to investors. That’s because we’re comparing two approaches: time in the market versus timing the market. These concepts become especially topical – and even more debated – during periods of market volatility.

Timing the market is ultimately based on emotions and feelings. And achieving success demands that you do two very complicated things perfectly – getting out at the right time and getting back in at the right time.

Conversely, time in the market relies on fluctuations – including gains following losses – to build long-term growth. It’s about staying the course and using your designated time horizon to maximize your investment return over time.

There are things you can’t control

Are there any benefits to trying to time the market? In short, yes. During a downturn, if you withdraw your investments to avoid further decline, that could be beneficial. But, it’s usually not that simple, because most investors aren’t planning to get out of the market and stay out. They’re approaching investing as they would skipping double-dutch; they’re trying to get in and out, at the best times possible – and without getting tripped or tangled in the process.

Timing a perfect exit and re-entry is hard enough for seasoned financial professionals, and they are immersed in the markets on a daily basis. So, what about the average investor? Even those who manage to sidestep the worst days of a downturn are likely to miss some of the upside, especially when their “worrying” investments are no longer top of mind.

Furthermore, markets don’t follow a straight line. They go up and down, often in quick sequence, making it extremely difficult to know when they’re falling (time to buy) or rising (time to sell). This introduces the added layer of our emotions and feelings on our investing decisions. And, in times of uncertainty, it can be extra tempting to pull out of the market, “until things settle down.”

History shows that markets tend to bounce back quickly after major events, which means that – like downturns – market gains can come equally fast and unexpectedly. In short, missing even a few of the best days in the market can impact your long-term success.

Don’t forget, it’s the ongoing job of professional fund managers to maximize investment opportunities when markets go up, and when they go down. While they’re not specifically “timing” the market, they are making real-time decisions, based on current economic conditions and long-term market prospects. Suddenly pulling your investment out of the market could work against their overarching efforts.

The bottom line? Investing – and staying invested – throughout market fluctuations is the surefire way to capitalize on probable market recovery.

There are things you can control

When investing, it’s always helpful to focus on your own long-term goals and your own tolerance for risk.

From there, you can take advantage of an investment strategy known as “dollar cost averaging,” which helps to reduce the “need” for timing the market altogether. Instead, by making regular contributions, you’re buying fewer units of an investment when values are high and more units when values are low. This strategy proves to be one of the best defences against volatile markets. It’s also an effective way to remove emotion from your investing decisions.

Whether it’s reviewing your plan or helping you implement a protective measure, our financial representatives^* are here to guide you through periods of uncertainty.

In the meantime, a helpful hint: If your investment goals, risk tolerance and time horizon haven’t changed, you’re likely on the right track. Do what you can to stay the course and let the markets recover – hopefully, in your favour.

For more information, and for resources and financial-market news, visit Market View.